GM Earnings: The Market’s Pricing Decline Fears Continue to Go Unrealized

Key Morningstar Metrics for General Motors

• Fair Value Estimate: $77.00
• Morningstar Rating: 4 stars
• Morningstar Economic Moat Rating: None
• Morningstar Uncertainty Rating: High

What We Thought of General Motors’ Earnings

We maintain our fair value estimate of $77 per share for General Motors GM after the firm reported strong third-quarter results and raised 2024 guidance. We continue to see the stock as undervalued, as the firm has a strong North American product lineup. It is buying back lots of its stock while keeping costs in line despite investing in electric and autonomous vehicles. Seeing the market finally reward GM’s earnings by sending the stock up nearly 10% on Oct. 22 was good.

Adjusted diluted earnings per share of $2.96 beat the $2.43 LSEG consensus and increased 29.8% year over year. Adjusted automotive free cash flow rose 18.8% to $5.8 billion on 15.5% adjusted EBIT growth, less capital expenditure, and favorable working capital. Full-year adjusted automotive free cash flow guidance at the midpoint is up $2.5 billion from July to $13 billion. The free cash guidance increase is from pricing not falling as GM expected (it was a $1 billion tailwind for third-quarter profit), and some cost increases have been non-cash charges for 2024, such as a $700 million unfavorable warranty variance in the quarter to reserve for future repairs at higher parts and labor costs due to recent inflation.

The third quarter’s $4.1 billion total company-adjusted EBIT will not repeat in the fourth, as management indicated various headwinds that could mean a sequential EBIT decline of as much as $1.5 billion. Refreshed full-size SUVs launching now means erratic production of these highly profitable models. GM pulled forward about $400 million of production into the third quarter, so dealers will have something to sell in that segment until fresher product arrives later in the fourth quarter and 2025. The fourth quarter will also see about eight lost production days for holidays, and hurricanes stopped some October production. EV mix will increase, as GM needs to wholesale about 80,000 EVs to meet its 2024 target of 200,000 units. Incentives will likely rise to be competitive for the holiday shopping season.