What’s Next For GM After A Solid Q4?
General Motors (NYSE:GM) published a better-than-expected set of Q4 2022 results on Tuesday, driven by continued strong demand, particularly in North America, and signs that supply chain conditions were improving after over a year of shortfalls. Over the quarter, revenue rose 28% year-over-year to $43.11 billion, while adjusted earnings stood at $2.12 per share, up from $1.35 in the year-ago quarter. Volumes in North America jumped by about 43% versus Q4 2021, to 729,000 units, although sales in international markets contracted. GM has also made meaningful progress in the commercial fleet business, driven by its capacity expansions in crew cabs and heavy-duty pickups. For the quarter, GM saw its adjusted operating profit margins rise by about 30 basis points to 8.8%, driven by stronger volumes and favorable pricing, although this was partly offset by higher costs and a greater mix of cars (which typically have lower margins).
Now the markets have been bracing for a tough 2023 for the automotive industry, due to rising interest rates, cooling prices for new and used vehicles, and the increasing probability of a U.S. recession. However, GM’s guidance was actually stronger than expected, with the company projecting adjusted earnings per share of between $6 and $7 for 2023, with automotive free cash flow projected at between $5 billion to $7 billion. Moreover, the company has also planned cost cuts, targeting about $2 billion in reductions over the next two years.
GM stock soared by almost 9% in Tuesday’s trading following the results. However, we still think the stock remains undervalued post the recent rally. At the current market price of about $39 per share, GM trades at just under 6x the upper end of its projected 2023 adjusted earnings. GM is doubling down on the production of electric vehicles with plans to produce around 400,000 EVs in North America between now and mid-2023. GM is also focusing on securing the supply of lithium for its EV batteries, announcing a $650 million equity investment into Lithium Americas, a lithium miner. GM also appears very optimistic about its long-term prospects, noting that it intends to double revenue to between $275 billion and $315 billion by 2030, driven in part by growth in EVs, software, and self-driving technology. The company also intends to expand margins to between 12% to 14%.
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We remain bullish on GM stock with a $49 price estimate, which is roughly 25% ahead of the current market price. See our analysis on General Motors Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for GM. For more information on GM’s business model and revenue trends, check out our dashboard on General Motors Revenue: How GM Makes Money.
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| Returns | Feb 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| GM Return | 0% | 17% | 13% |
| S&P 500 Return | 0% | 6% | 82% |
| Trefis Multi-Strategy Portfolio | 0% | 12% | 251% |
[1] Month-to-date and year-to-date as of 2/1/2023
[2] Cumulative total returns since the end of 2016
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