Up 35% This Year, Will GM Stock See Further Gains Post Q3 Earnings?

General Motors (NYSE:GM) is poised to report its Q3 2024 results shortly. We expect earnings for the quarter to come in at $2.45 per share, slightly ahead of consensus and up by almost 8% compared to last year, while revenues are likely to grow by about 1% year-over-year to $44.7 billion. GM stock has gained 34% this year, driven by expectations of improving profitability and higher truck sales.  This compares to rival Ford stock (NYSE:F), which has seen its stock fall by almost 10% over the same period.  See our analysis of GM Earnings Preview for a closer look at what to expect when the company publishes earnings.

Retail automotive sales have been cooling down of late as consumer confidence in the U.S. weakens and high interest rates make financing vehicle purchases more expensive. GM has published U.S. vehicle delivery data for the last quarter, indicating that sales fell 2.2% year-over-year. Much of the decline was driven by lower sales to fleet customers, with sales down 18% compared to the last year. However, retail sales rose almost 3%, with strong sales of the GMC, Cadillac, and Buick brands being partly offset by weakness at the Chevrolet brand, which saw weaker sales of cars and pickup trucks such as the Silverado. That said, GM posted record electric-vehicle deliveries of 32,095 units over the last quarter, up close to 60% year-over-year.

Things could remain somewhat mixed on the pricing front as well as GM is seeing higher sales of affordable vehicles such as the Chevrolet Trax, Equinox EV, and Buick Envista. That said,  the company says that it is not offering more incentives while noting that overall pricing has remained consistent. GM’s new deal with the United Auto Workers last November is also likely to have a softer-than-expected impact on the company’s earnings thus far.  While wages increased about 11% when UAW approved the new contract, GM raised its adjusted pre-tax profit projection for this financial year to $13 billion to $15 billion, up from a previous estimate of $12.5 billion to $14.5 billion.

The increase in GM stock over the last 4-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 41% in 2021, -42% in 2022, and 8% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could GM face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Although there are concerns about the broader automotive market, there are some positives for GM. While the slow pace of GM’s EV transition was a headwind for the stock previously, the EV market has cooled off a bit. Slower growth in EV demand could give players such as GM more time to monetize gas-based vehicles while investing in long-term electric vehicle developments. Separately, recent changes to U.S. monetary policy could also provide a tailwind. Last month, the Federal Reserve implemented its first rate cut in nearly four years, reducing the benchmark federal funds rate by 50 basis points to a range of 4.75% to 5%. With room for further rate reductions, lower borrowing costs may stimulate demand for big-ticket purchases such as vehicles, benefiting automotive players such as GM. Check out our analysis of other ways to profit from the Fed’s next move?  

GM’s stock also looks fair at current levels of about $48 per share or under 6x consensus 2024 earnings. We have a $43 price estimate for GM, which is slightly below the current market price. We will be updating our price estimate post earnings. 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.

[1] Returns as of 10/16/2024
[2] Cumulative total returns since the end of 2016