GM: Boom

| About: General Motors (GM)

Summary

I got behind GM when the stock was yielding 5%.

Shares are now two points beneath a 52 week high.

Q1 earnings are out and I discuss the results.

Last year I covered General Motors Co. (NYSE:GM) and in plain language I told you that this company was a buy based on shareholder friendly policies and expectations for future performance. When I said that, I was following-up to my article where I cited that it was a name that was hard not to like. I talked about the high yield, the buyback and the improving aspects of the business. Bottom line, the company has turned around from nearly going the way of the dinosaur, and has now been delivering strong earnings while growing revenues. The decline in oil tends to help auto sales, particularly of larger vehicles. While being impacted heavily by the strong U.S. dollar, at the end of the day, we had a stock that was offering a 5% yield with an improving outlook. Now the stock is just two points shy of a 52 week high? Is it still a buy? To understand this, we need to understand how the company is performing and where it is heading.

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Source: cbsnews.com

Well the company just reported results for Q1 2016. One word: boom. Shares are reacting nicely today so it must have been a disaster right? Well, the company delivered both a top and bottom line beat. These were major beats. Revenue had been an issue for some time in terms of missing expectations, but the company had been doing rather well on the income front. So what are we looking at? Well, net income came in at $2.0 billion in Q1, or $1.24 per diluted share. This is up from $0.9 billion or $0.56 per share last year. Earnings per share on an adjusted basis was a strong $1.26 per share and this beat estimates by a strong $0.25. Adjusted earnings before interest and taxes adjusted increased to a record $2.7 billion and the EBIT-adjusted margin grew to 7.1%, up from 6.1% last year and up from 7% in Q4 2015. I am incredibly pleased with the results.

What about sales? These are vital of course, of course, and I will say that the revenues have been an issue in the past year. In many cases the poor revenues were almost entirely due to the currency exchange problem that had been plaguing domestic companies with a lot of international business. Sales were slow in some areas with shaky economies (e.g. Europe), but in Q1 revenues were incredibly strong. GM's net revenue came in at $37.3 billion. This beat estimates by a whopping $1.89 billion. Sales were up 4.5% compared to last year on an absolute basis, compared to $35.7 billion from Q1 2015. However, we really need to consider the currency issue, which makes up this entire difference. On a constant dollar basis, net revenue was an impressive $2.9 billion higher than the Q1 2015 numbers. It was impressive. I want to also point out that nearly all sectors performed well; however, Europe continues to be a bit weak, breaking even in the quarter. In contrast, North America has been incredibly strong, more than enough to offset international weakness. As a whole, the company did very well. Commenting on the quarter, CEO Mary Barra said:

"We're growing where it counts, gaining retail share in the U.S., outpacing the industry in Europe and capitalizing on robust growth in SUV and luxury segments in China. This strong quarter also reflects the excellent progress we're making to improve results in our more challenged global markets. Importantly, the continued success of our core business is enabling us to invest in advanced technology and innovations that will help shape the future of personal mobility."

From my viewpoint, this quarter was a huge success. The revenues for many domestic companies with international exposure have been impacted greatly by currency exchange rates. Incredible margins in North America and strong margins in China have been seen. The company saw earnings rise 47% in the 2016 versus 2015 quarter. Despite the stock rising since I last covered the name, this is still a dividend play. Sure the economy could tank again and sales could dip. That is a real risk. But it is one I am willing to make at over a 4% yield when revenues (adjusted for currency) and earnings are growing tremendously. The dividend was recently raised and there are continued buybacks. Considering the fundamentals are strong I think you should definitely be accumulating shares when the stock pulls back. I would not be taking profits, because barring market turmoil, I see the stock moving higher longer-term.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box "Real-time alerts on this author" under "Follow."

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.