On Monday, Evercore ISI maintained its positive stance on General Motors (NYSE:GM), keeping an Outperform rating and a $55.00 price target for the automaker. The firm highlighted several key takeaways from a recent investor event, noting GM's aim to achieve an EBIT (Earnings Before Interest and Taxes) range similar to its projected peak in 2024, which is expected to be an impressive $13-15 billion. This target surpasses the current consensus of $12.4 billion and would mark the highest earnings GM has ever recorded in a year, compared to $12.5 billion EBIT in 2016.
The analysis pointed out that the anticipated increase in earnings is due to improving EV (electric vehicle) losses, which are estimated to provide a $2-4 billion tailwind. This is expected to be partially offset by pricing and mix headwinds amounting to $2-3 billion as the U.S. auto market matures. GM's market share in the U.S. EV sector is currently 9.8%, supported by its solid EV portfolio, including new Cadillac EVs (Optiq, updated Lyriq, and Escalade IQ) and affordable Chevy EVs. Despite a slight reduction in the EV target for 2024 to 200,000 vehicles from the previous 250-300,000, the company's electrified trucks and SUVs remain on track.
The firm also observed GM's efforts to streamline its operations by reducing complexity and trimming its options portfolio, which has led to profitability improvements in non-T1 products, such as small SUVs and crossovers, with jumps in EBIT contribution. However, investors were reportedly left with questions regarding Cruise, GM's operations in China, and the company's plans for share repurchases and capital returns.
Despite these uncertainties, the narrowing of EV losses and the potential for variable profit growth were seen as positive signs. Additionally, the firm suggested that GM's flat EBIT in a challenging auto market, which is expected to remain above the FY25 consensus, should instill confidence in the company's earnings resilience. Looking ahead, the focus will shift to FY26 earnings and whether GM can maintain its EBIT performance in what may be an even tougher market than 2025. Evercore ISI concluded by affirming its thesis that "Defense is the best Offense" and its expectation for a "higher for longer" $55 GM Target (NYSE:TGT), corresponding to an implied 2025 EPS of $9.50-10.
In other recent news, General Motors (GM) has been active on several fronts, including energy storage, EV strategy, and investor reassurances. GM Energy has launched home energy storage options, the PowerBank, targeting electric vehicle (EV) owners. Available in two battery capacity variants, the PowerBank provides a solution for storing and transferring solar energy at home. On the EV front, RBC (TSX:RY) Capital has maintained its Outperform rating on GM shares, citing the company's EV strategy as a leading approach among established automotive manufacturers. The firm highlighted GM's domestic battery production and flexible manufacturing processes as key factors in reducing battery costs.
In recent developments, GM has aimed to reassure investors about the demand for EVs and the future profitability of gasoline-powered trucks. The company indicated strong third-quarter sales and an upcoming refresh of eight internal combustion engine models by 2025 as signs of stability. GM has also resumed operations at its Texas and Michigan plants, which were temporarily closed due to supplier complications from Hurricane Helene.
In political news, former President Donald Trump has proposed imposing tariffs well over 200% on vehicles imported from Mexico, a move that could significantly impact the automotive industry. The United Auto Workers (UAW) President Shawn Fain has also voiced concerns about potential job losses if Trump revokes the Inflation Reduction Act and its provisions for EV investments.
InvestingPro Insights
To complement Evercore ISI's analysis, recent data from InvestingPro provides additional context to GM's financial position and market performance. The company's P/E ratio of 5.42 and adjusted P/E ratio of 4.79 for the last twelve months as of Q2 2024 suggest that GM is trading at a relatively low earnings multiple, which aligns with one of the InvestingPro Tips highlighting GM's attractive valuation relative to its near-term earnings growth potential.
GM's revenue for the last twelve months as of Q2 2024 stood at $178.09 billion, with a revenue growth of 4.93% over the same period. This growth, coupled with an operating income of $11.83 billion and an operating income margin of 6.64%, underscores the company's ability to maintain profitability in a challenging auto market, as noted in the Evercore ISI analysis.
InvestingPro Tips also point out that GM's management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's future prospects. Additionally, the fact that 6 analysts have revised their earnings upwards for the upcoming period aligns with the positive outlook presented in the article.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for GM, providing a deeper understanding of the company's financial health and market position.
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