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GM Earnings: Stock Selloff Does Not Look Justified to Us

We are not changing our fair value estimate of $78 for GM stock; the firm is delivering what it said it would while generating good free cash flow.

General Motors logo superimposed atop the world headquarters building.
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General Motors Co
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General Motors Stock at a Glance

General Motors Earnings Update

It is disappointing to see General Motors GM stock fall by over 4% on July 25 after the company reported what we see as good second-quarter results. Adjusted automotive free cash flow nearly quadrupled year over year to $5.5 billion. We are not changing our fair value estimate because GM is delivering on what it said it would do while also generating respectable free cash flow.

We think the stock may be down on fears of a possible UAW strike this fall and perhaps frustration with GM’s slow rollout of battery electric vehicles, but production should accelerate as GMC Hummer production rises this year and the firm resolves a problem with an automation equipment supplier at the Ultium Cells joint venture plant in Ohio. GM also said it is no longer discontinuing the Bolt, and will instead add Ultium batteries to it, though not until 2024. About 70% of Bolt buyers are new to GM.

Second-quarter adjusted earnings per share of $1.91 beat the $1.85 Refinitiv consensus, and GM raised its 2023 guidance for the second time based on strong demand and expected pricing headwinds not yet appearing. Adjusted diluted EPS for 2023 is now guided at $7.15-$8.15, up from $6.35-$7.35, while adjusted automotive free cash flow is now $7 billion to $9 billion versus the previous $5.5 billion to $7.5 billion.

CFO Paul Jacobson said the midterm capital expenditure guidance of $11 billion to $13 billion should come down at the firm’s mid-November investor day, and that 2023 spending guidance is $1 billion lower on the high end of guidance, now at $11 billion to $12 billion. Guidance assumes no strikes from the UAW or Unifor negotiations, and both unions have contracts expiring in September.

We are pleased to hear CEO Mary Barra talk about targeting a 50% reduction in vehicle trim offerings, which should make the buying experience easier while saving money on fewer part variations. Also good is that GM bought back about $865 million of stock, which we like to see when the stock price is well below our fair value estimate.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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