What Is the Best Auto Stock on Wall Street Right Now?

Auto giant General Motors (GM) achieved top-to-bottom-line growth in its third quarter and raised its full-year 2022 guidance. With the growing EV adoption worldwide, the company is committed to rapidly scaling its EV portfolio. With Wall Street analysts seeing an 18% upside in the stock, this auto stock could be an ideal addition to your portfolio. Read on…

Auto manufacturer General Motors Company (GM) reported solid third-quarter 2022 financial results. The company’s revenue of $41.89 billion increased 56.4% year-over-year to $41.89 billion, while its adjusted EPS came in at $2.25, up 48% year-over-year. Moreover, the company raised its 2022 guidance and provided key performance indicators to help investors track its transformation and financial performance through 2025.

In the next three years, GM plans to move aggressively toward EV leadership as EV adoption is projected to be approximately 20% of U.S. industry sales in 2025. GM Chair and CEO Mary Barra said, “GM's ability to grow EV sales is the payoff for many years of investment in R&D, design, engineering, manufacturing, our supply chain and a new EV customer experience that is designed to be the best in the industry.”

“Our multi-brand, multi-segment, multi price point EV strategy gives us incredible leverage to grow revenue and market share, and we believe our Ultium Platform and vertical integration will allow us to continuously improve battery performance and costs.” she added.

For the full-year 2022, the company expects adjusted automotive free cash flow to increase to $10-11 billion from its prior guidance of $7-9 billion. It now projects EBIT-adjusted to be in the range of $13.50-14.50 billion, up from its previous guidance of $13-15 billion.

Furthermore, the company’s total revenue is expected to grow at a 12% compound annual rate through 2025, reaching nearly $225 billion as EV volumes and software revenue grow. GM’s revenue from EVs is projected to be more than $50 billion in 2025.

Moreover, the company expects to grow EV capacity in North America to more than 1 million units annually in 2025 and maintain its historical adjusted EBIT margins of 8-10% in the region through this growth investment period. Also, GM expects to reach a U.S. battery cell capacity of 160 GWh and 1.2 million cells per day by mid-decade.

Shares of GM have gained 11.7% over the past six months to $36.44. Furthermore, Wall Street analysts expect the stock to hit $43.00 in the next 12 months, indicating an 18% upside potential.

Here is what could shape GM’s performance in the near term:

Favorable Recent Developments

On November 17, 2022, GM and Vale Canada Limited, a subsidiary of Vale S.A. (VALE), signed an agreement for the long-term supply of battery-grade nickel sulfate to enhance North American EV supply chains. This deal is expected to help GM reach its target of building 1 million EVs annually in North America in 2025.

Also, on November 16, GM and Nel Hydrogen US, a subsidiary of Nel ASA, entered into a joint development agreement. This agreement will merge GM’s fuel cell expertise and NEL’s deep knowledge of electrolyzers, forming cost-efficient renewable hydrogen sources.

Solid Financials

In its fiscal third quarter ended September 30, 2022, GM’s revenue of $41.89 billion increased 56.4% year-over-year, with its automotive revenue at $38.70 billion, up 65.2% year-over-year. Its automotive operating cash flow grew 349.9% year-over-year to $6.50 billion, while its adjusted automotive free cash flow was $4.59 billion, up 204.7% year-over-year.

Furthermore, GM’s adjusted EBIT increased 46.7% year-over-year to $4.29 billion. The company’s adjusted net earnings rose 47.5% year-over-year to $3.28 billion, while its adjusted EPS increased 48% year-over-year to $2.25.

Favorable Analyst Estimates

The consensus EPS estimate of $1.67 for the fourth quarter ended December 2022 represents a 23.9% improvement year-over-year. The consensus revenue estimate of $40.83 billion for the same quarter indicates a 21.6% increase year-over-year. Also, the company has surpassed the consensus EPS estimates in three of the trailing four quarters.

Analysts expect GM’s EPS and revenue for the fiscal year 2022 to come in at $7.15 and $154.27 billion, indicating an increase of 1.1% and 21.5% year-over-year. Also, the company’s revenue for the current fiscal year (ending December 2023) is expected to grow 3.2% from the previous year to $159.13 billion.

Discounted Valuation

In terms of forward non-GAAP P/E, GM is trading at 5.10x, 64.2% lower than the industry average of 14.23x. Its forward EV/Sales multiple of 0.94 is 20.7% lower than the industry average of 1.19. Moreover, the stock’s forward Price/Sales of 0.34x is 63.8% lower than the 0.93x industry average.

Robust Profitability

GM’s trailing-12-month EBIT margin of 8.17% is 2.6% higher than the industry average of 7.96%, while its trailing-12-month EBITDA margin of 12.24% is 10.7% higher than the industry average of 11.05%. Likewise, the stock’s trailing-12-month levered FCF margin of 3.34% is 148% higher than the industry average of 1.35%.

In addition, the stock’s trailing-12-month net income margin of 6.57% is 26.9% higher than the industry average of 5.18%. And its trailing-12-month ROCE of 14.45% is 11.7% higher than the industry average of 12.93%.

POWR Ratings Reflect Promising Outlook

GM has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GM has an A grade for Growth and a B for Sentiment, consistent with its robust financials and favorable analyst estimates. Also, the stock has a B grade for Value, in sync with its lower-than-industry valuation.

GM is ranked #16 in the 65-stock Auto & Vehicle Manufacturers industry.

Beyond what I have stated above, we have also given GM grades for Quality, Momentum, and Stability. Get access to all GM ratings here.

Bottom Line

Auto and vehicle manufacturer GM’s bottom line beat Wall Street expectations. The company also raised its fiscal 2022 guidance and predicted its rapidly growing EV portfolio to be highly profitable and generate strong margins in the upcoming years.

Paul Jacobson, GM executive vice president, and CFO said, “Our Ultium Platform and battery technology will only get better and less expensive over time, and we have enterprise-wide momentum in EVs, Cruise, software-defined vehicles and new businesses like BrightDrop that will help us achieve our revenue and margin targets by the end of the decade.”

Given GM’s solid financials, promising growth prospects, high profitability, and discounted valuation, we think this auto stock could be a wise addition to your portfolio.

How Does General Motors Company (GM) Stack up Against Its Peers?

While GM has an overall POWR Rating of B, check out these other stocks within the Auto & Vehicle manufacturers industry with an A (Strong Buy) rating: Volkswagen AG 1/10th ADR (VWAGY), Honda Motor Co. Ltd. ADR (HMC), and Subaru Corp. ADR (FUJHY).

GM shares fell $0.34 (-0.93%) in premarket trading Thursday. Year-to-date, GM has gained 7.16%, versus a 1.70% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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