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The Ratings Game: GM ‘came out swinging’ in Q4, surprising Street with optimistic 2022 view


General Motors Co. earned praise from Wall Street on Wednesday, a day after the auto maker painted a rosy demand and production picture for 2022 and renewed its all-in bets on electric vehicles and driverless cars.

GM “came out swinging” in the quarter, juggling supply-chain constraints with laying “the major groundwork for its game changing EV strategy and vision,” Wedbush analyst Dan Ives said in a note.

GM GM, -1.05% late Tuesday reported fourth-quarter earnings that were above Wall Street expectations but sales that fell short.

On a call with analysts after the results, Chief Executive Mary Barra and other GM executives sounded optimistic about 2022, guiding for volume growth of around 25% to 30% year-over-year, and confident about the demand side.

Barra also surprised analysts by saying that supply-chain snags will be easing sooner than some expected, pinning it for the second half of the year, with chip sourcing also improving in 2022.

GM’s volume-growth expectation is a “bullish data point for GM and the entire auto space as the supply-chain issues have been a major Street worry as this dark cloud has cast a shadow over the entire auto industry,” Wedbush’s Ives said.

See also: Ford earnings: Will auto maker make even bigger investments in EVs?

GM’s volume expectations and the confidence that chip shortages and supply-chain issues are easing “stand out vs. some other industry commentary,” Joseph Spak at RBC Securities said.

“We remain conservatively below GM’s wholesale guidance,” he said. GM accelerated its EV pathway and the guidance is “solid proof of GM’s ability to still earn a healthy profit while funding the future,” Spak said.

The post-results conference call also gave the Street some “interesting takeaways” regarding reservations for the electric Chevy Silverado pickup truck, which GM said are already around 110,000 after about a month. And for the EV Hummer, reservations are around 59,000, which is “an impressive number” given that the vehicle costs between $80,000 to $110,000 plus, Matthew Portillo with Tudor Pickering Holt said in his note.

GM’s autonomous-driving unit Cruise was another highlight of the call, as Cruise has launched driverless rides in San Francisco for nonemployees and “continues to expand on its pole position for L4 [Level 4] autonomy, in our view,” Portillo said.

Related: Tesla stock off week’s highs after ‘rolling stop’ recall

Commercialization of AVs is a “key step,” but the market still needs more on the GM/Cruise relationship, Dan Levy with Credit Suisse said in this note.

The driverless rides’ launch in San Francisco “was a key positive, providing hopes that Cruise is slowly but surely on its way to scaling the biz. Yet, some overhang remains on the relationship between GM and Cruise that we think should be clarified,” he said.

Overall, GM’s fourth-quarter results “cleared the bar, and showed why GM continues to take the right steps in EV and autonomous,” Levy said.

“GM is currently generating near-record profit,” which is critical in helping to fund EV/growth initiatives. “And while we acknowledge GM will ultimately need to put up healthy EV sales volume to truly show it is making the EV transition, we appreciate the steps GM is taking.”

Levy kept the equivalent of a buy rating on the stock, but cut his price target on the stock to $75, which represents upside of around 42%.

Of the 25 GM analysts polled by FactSet, 21 have a buy rating on the stock, with four rating it a hold. The average price target is $77.

Despite the accolades from analysts, GM stock traded lower on Thursday, alongside nearly all U.S.-trading auto stocks, and underperformed the S&P 500 index. SPX

GM stock has lost 0.2% in the past 12 months, contrasting with gains of around 19% for the S&P 500.

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