General Motors’ Q4 Earnings Show the Market Keeps Underestimating It
Overdone recession fears have left GM stock significantly undervalued.
General Motors Stock at a Glance
- Current Morningstar Fair Value Estimate: $75
- General Motors Stock Star Rating: 5 Stars
- Economic Moat Rating: None
- Moat Trend Rating: Negative
GM Earnings Update
GM finished 2022 with an excellent fourth quarter and introduced 2023 guidance well above the Refinitiv consensus. We are not changing our fair value estimate but will revisit all modeling assumptions shortly when we roll our model forward for the 10-K. The market’s fears of macroeconomic factors hurting GM’s pricing and demand have not yet materialized, and management said January remained strong like 2022′s performance. The company does expect GM North America pricing to be a negative headwind as 2023 unfolds, which makes sense given the chip shortage has led to incentives and inventory at very low levels that we feel will only rise over time. Volume and mix should net to be slightly positive to adjusted EBIT, with mix being negative on a tough comparable to light truck’s popularity in 2022, and cost recoveries given to suppliers should offset most of the benefit from declining commodity costs.
2023 adjusted EPS guidance of $6.00-$7.00 is well above the $5.73 Refinitiv consensus, which to us says the market continues to underestimate GM’s ability to make money with its desirable vehicle portfolio. Adjusted EBIT guidance including GM Financial is $10.5 billion to $12.5 billion compared with 2022′s $14.5 billion, while adjusted automotive free cash flow is guided to $5 billion to $7 billion down from $10.5 billion in 2022. Capital spending of $11 billion to $13 billion, up from $9 billion last year, and likely lower GMNA earnings are key reasons for the cash flow decline.
Fourth-quarter adjusted diluted EPS of $2.12 rose 57% year over year to beat the $1.69 Refinitiv consensus and brought full-year EPS to $7.59, which was above the $6.75-$7.25 guided in November. GMNA’s 69% fourth-quarter EBIT growth drove the overall company’s 34% increase to $3.8 billion. Higher volume and a $2.5 billion pricing tailwind overcame mix and cost increases. GM announced a net $2 billion fixed cost reduction program to be completed by the end of 2024, but no buyouts are planned.
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