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What Could Justify General Motors' Stock Price?
- In the following I will try to figure out what assumptions have to be met, to justify GM's stock price.
- The framework is a very simple DCF framework.
- Rather than pin an exact value on the company, my approach is to find reasonable ranges, for different outcomes.
- I find GM to be undervalued in all realistic scenarios.
General Motors: 3.7% Dividend Yield And 50% Appreciation Potential Make It A Buy
- GM offers a large margin of safety, strong appreciation potential and an attractive dividend yield.
- North American EBIT adjusted margins of 9.5% are up about 200 bps from when the company IPO’d.
- The company has made real strides in bolstering North American profitability and China has been a source of real strength.
- GM is not your mom and pop's car company any longer.
- The "new" General Motors seems to have succeeded in streamlining its business, and is putting out a much more quality product.
- I invest in this company as a speculative dividend growth bet, due to perceived limited downside after the recent sell-off.
Update: General Motors Still Down Despite Decent Q3 Earnings
- GM beat consensus on the bottom line but missed on the top line.
- The earnings beat confirms our opinion that GM is a solid long-term play on the global recovery.
- We have noted before that GM has impressive exposure to China which is a long-term positive.
Update: General Motors Drives Out Of The Recall Ditch With $0.97 In Adjusted EPS
- GM beat consensus estimates by $0.02, while increasing truck/SUV market share by 1.3%.
- Predictions that recalls would not hurt sales have been confirmed; European weakness broader and deeper than expected.
- GM continued at "Buy" on valuation and yield.
- General Motors and its shareholders have faced travails in 2014 due to the saga of a major recall crisis.
- However, given this headwind and challenges in Europe the company is delivering solid results.
- The fall in price represents a good opportunity as 2015 is shaping up to be a much better year for the company.
- The stock is cheap, pays a solid dividend, has huge free cash flow and has billionaire fund managers singing its praises as an investment recently.
Is It Safe To Reach For The Ignition Switch? GM In Q3
- Company leadership seems rather insulated from the recent spate of negative news surrounding the company.
- Long-term projects will increase the costs incurred in the short term, which will likely in turn hurt profit margins.
- Financials can be expected to remain at marginal-to-little growth over last year quarter.
- The whisper number is $0.98, one cent ahead of the analysts' estimate.
- GM has a 70% positive surprise history (having topped the whisper in 21 of the 30 earnings reports for which we have data).
- The overall average post earnings price move is 'negative' (beat the whisper number and see weakness, miss and see weakness) when the company reports earnings.
- GM is in the midst of a very tough year.
- Third quarter earnings could jump-start the stock into 2015 or send the stock even further down, below $30 per share.
- Analysts aren't expecting much growth at all and estimates have been revised downward.
- Three keys to focus on are margins, sales in Europe, and guidance.
- Shares of General Motors have fallen in light of the recalls but stronger sales have helped to support the company.
- Strong sales may be a result of recall customers coming into the dealerships and big discount programs - both unsustainable over the long-term.
- Not only are high sales numbers likely unsustainable, the company has had to issue stop-sell orders on many new models which may further hurt its reputation.
GM Meets Our Price Target, We Still Don't Like It
- GM meets our price target of $31, just weeks after we set it.
- General Motors drags Ford down with it, as Morgan Stanley sees pressure from overseas.
- Despite meeting our target, we are not ready to consider an investment in GM.
- I believe GM to be inexpensive until at least $48 and will be buying it till that price.
- The company continues to increase unit sales though recalls continue to plague the car manufacturer.
- The dividend yield is a high 3.54% and should provide support if the stock price declines.
- We previously set a $31 price target on GM, and our last article on the company highlighted 222k new recalls due to brake pad malfunction.
- Warren Buffett injected some confidence into automotive to end last week. Despite this, we find GM embarrassing.
- More GM recalls (nearly 200k) did well to damper any small confidence that may have been brewing about the company.
- Sales up by double digits.
- Continued innovation beginning to come online.
- Credit upgrade and improving fundamentals.
- GM, valued at $53B, is one of the few large cap stocks in the market that continues to trade at Great Recession levels across many metrics.
- A company not without recent troubles, new management and the enormous recalls allow for cleaning of house.
- Despite the supposed North American reputation hit, GMNA sales and average transaction prices (ATP) continue to rise, confusing analysts, journalists, and critics.
- Current troubles obscure the underlying earnings power of a business that sells ten million vehicles a year across six continents.
- Despite having been solidly profitable for several years, GM still seems to be priced as if it were struggling for survival.
General Motors: A Risky Investment That Investors Should Avoid
- General Motors' performance in the emerging markets and in Europe might remain under pressure due to competition.
- General Motors' valuation is expensive as compared to the industry.
- General Motors' margins are weak.
- Ford's aluminum pick-up truck is another challenge for General Motors.
With Consistent Sales And Re-Branding In Sight, GM Apparently Regaining Strength
- Although GM is still reeling from its series of recalls and unfolding issues in China, management is moving forward with strategic initiatives.
- GM announced that Cadillac will split off and re-brand itself for a younger demographic, based in NYC.
- GM sales have remained surprisingly steady, along with its dividend (albeit a poor stock performance YTD).
- At a relatively low price point, GM could be well-positioned for a long-term recovery.
How Will General Motors' Plans To Develop New Technology Affect Its Future?
- General Motors will introduce vehicles with hands free, automated driving systems and Wi-Fi connected communication systems between vehicles by 2016.
- Officials of the company declined to comment about how much this super cruise feature will cost on the new vehicle.
- It also has plans to collaborate with the Michigan Department of Transportation, Ford Motors and the University of Michigan to work on the development of technology for vehicles-to-infrastructure.
- United States Department of Transportation is considering making it mandatory for vehicles to have communication systems in the future.
- In its second quarter results, GM announced an increase in revenues but declines in profits due to incurring various high costs.
Today, 3:19 PM
- Edmunds.com projects U.S. auto sales will rise 1.6% to 1.261M units in November.
- Projected sales volume growth by automaker: General Motors (NYSE:GM) +0.6% to 213.42K, Ford (NYSE:F) -1.4% to 186.98K, Toyota (NYSE:TM) +1.6% to 180.88K, Chrysler Automobiles Group (NYSE:FCAU) +14.9% to 163.49K, Honda (NYSE:HMC) +1.1% to 117.76K, Nissan (OTCPK:NSANY) -8.5% to 97.46K, Hyundai (OTC:HYMLF) -6.6% to 94.77K, Volkswagen (OTCQX:VLKAY) +4.2% to 46.24K.
Sat, Nov. 22, 5:17 PM
- G.M. (NYSE:GM) pressured Delphi to keep making the infamous faulty ignition switch and improve it, even though it couldn’t be fixed, an email released Friday shows.
- In 2005, two G.M. committees were pushing for a solution to the problem after it received reports of the switch failing when bumped, shutting down the engine and disabling key systems like power steering and airbags.
- On Thursday, Arizona became the first state to join consumers suing GM over the switches. Arizona AG Tom Horne wants fines of $10,000 for each of the hundreds of thousands of GM vehicles sold in violation of consumer-fraud law.
- GM is -21% YTD.
Sat, Nov. 22, 1:51 PM
- SGL Group (OTCPK:SGLFF), who supplies carbon fibre reinforced parts for BMW's (OTCPK:BAMXY) electric cars, is in talks with several other carmakers to supply carbon fibre, CEO Juergen Koehler tells Wirtschaftswoche.
- "VW (OTCPK:VLKAF), in particular through Audi (OTCPK:AUDVF) and Lamborghini are also banking on high-volume use of carbon components. General Motors (NYSE:GM) has also hinted recently that they want to use more carbon. Porsche (OTCPK:POAHF) is also very active," he said, adding that new contracts would not be as big as the BMW venture.
- BMW's i-series, which cost it billions to develop, has had weak sales. BMW had sold less than 11,000 i3s by the end of September.
- SGL's main business is making graphite electrodes used to recycle scrap metal into steel. Its carbon fibre business accounted for just 2% of sales last year.
- SGL has already cut 1,400 of its 6,000 workforce.
Sat, Nov. 22, 11:49 AM
- Starbucks (NASDAQ:SBUX) plans to introduce Powermat wireless charging stations at close to 200 stores in the San Francisco region.
- The Powermat cuts out cords in the charging process by using a process called inductively coupled power transfer.
- A broader roll-out of the technology by Starbucks is planned across the U.S. and Europe within a year.
- General Motors (NYSE:GM) is also an early adopter of the Powermat wireless charging system with integration in the 2015 Cadillac ATS. The automaker is an investor in Powermat through its nimble VC arm.
- Duracell sits right smack in the middle of the Powermat innovation as the company with the brand and manufacturing capabilities to aim high. The swap of the business from profit-focused Procter & Gamble (NYSE:PG) to strategic-minded Berkshire Hathaway (BRK.A, BRK.B) sets up well for investments in long-term growth, note analysts.
Fri, Nov. 21, 2:49 AM
- General Motors (NYSE:GM) is reshuffling several senior executives and announced the departure of another as the company looks to divide up global quality and customer-experience activities and place all of its customer-facing centers under single leadership.
- "We understand that we have to earn our customers’ trust and loyalty, and that every interaction matters," says CEO Mary Barra.
- The move comes as GM continues to deal with the recall of at least 2.5M vehicles owing to an ignition switch issue that is now linked to 30 deaths.
Thu, Nov. 20, 10:50 AM
Thu, Nov. 20, 1:54 AM
- Arizona has broken away from a group of 48 state attorneys general that has been pursuing a multistate investigation over GM's (NYSE:GM) record number of recalls this year, NYT reports.
- "General Motors represented that it was taking care of the safety of its cars, and in fact there were serious defects that it did not disclose to the public for years," says Attorney General Thomas Horne.
- Horne is claiming that the automaker defrauded the state’s consumers of an estimated $3B.
Tue, Nov. 18, 6:19 PM
- The National Highway Traffic Safety Administration is seeking the recall of "millions of vehicles" containing Takata (OTCPK:TKTDY) airbags, and the DoT agency will "use the full extent of its statutory powers" to force action if Takata and auto manufacturers fail to "quickly agree" to a recall.
- Cars had been recalled only in areas along the Gulf coast with high humidity, but the NHTSA says it is basing the decision on a recent incident that happened outside of those areas.
- NHTSA also orders Takata and all 10 auto companies that use Takata's air bag inflators - BMW (OTCPK:BAMXY, OTCPK:BAMXF), Chrysler (NYSE:FCAU), Ford (NYSE:F), GM, Honda (NYSE:HMC), Mazda (OTCPK:MZDAY), Mitsubishi (OTCPK:MMTOF), Nissan (OTCPK:NSANY, OTCPK:NSANF), Subaru (OTCPK:FUJHY), and Toyota (NYSE:TM) - to provide detailed reports about ongoing testing of the products outside of the high-humidity regions that already had recalls in place.
Tue, Nov. 18, 7:32 AM| 2 Comments
Mon, Nov. 17, 11:12 AM
- Kelley Blue Book names its Best Buy Award winners for 2015.
- The research firm picks the new Ford F-150 as its Overall Best Buy of 2015.
- The Honda Civic is the small car award winner, while its cousin the Accord took the mid-size prize.
- Other KBB award winners: Full-size Car: Chevrolet Impala, Luxury Car: Mercedes-Benz C-Class, Sports Car: Chevrolet Corvette, Electric/Hybrid: Chevrolet Volt, Mid-size SUV/Crossover: Toyota Highlander, Full-size SUV/Crossover: Chevrolet Tahoe.
- Related stocks: F, HMC, TM, GM, OTCPK:DDAIF.
Mon, Nov. 17, 9:26 AM| 1 Comment
Mon, Nov. 17, 5:40 AM
- The deadline to file claims under GM's (NYSE:GM) faulty ignition-switch compensation program has been extended by one month to Jan. 31, 2015.
- The program, GM Ignition Compensation Claims Resolution Facility, began accepting claims on Aug. 1, and received 1,851 claims for deaths and serious injuries linked to the switch as of Nov. 7.
- A notice of the extension was sent to almost 4.5M current and prior owners of the eligible vehicles.
Fri, Nov. 14, 4:28 PM
- Berkshire Hathaway (BRK.A, BRK.B) increased its GM stake in Q3 by 21% in Q3 to 40M shares. (13F filing)
- Warren Buffett's conglomerate exited its Deere (NYSE:DE) position; it had a 4M-share stake in the tractor maker at the end of Q2.
- A 449K-share stake was talen in PBM services giant Express Scripts (NASDAQ:ESRX). Stakes in IBM, Wal-Mart, MasterCard, and Visa were moderately increased.
- GM +0.7% AH. DE -0.4%.
Wed, Nov. 12, 10:06 AM
- The landmark emissions deal struck between the U.S. and China has implications for the automobile industry even if it is largely symbolic, according to analysts.
- There's some speculation that bickering between the nations over spying and other free trade issues won't reel in China-Western auto joint ventures and impact government EV subsidies as the nation stays focused on pollution control.
- Automaker stocks: GM, F, TM, FCAU, HMC, OTCPK:NSANY, TSLA, OTCQX:VLKAY, OTCPK:DDAIF, OTC:HYMLF, OTCPK:BAMXY, OTC:KIMTF, OTCPK:MMTOF, OTCPK:PEUGF, TTM, TSLA.
Tue, Nov. 11, 5:56 PM
- General Motors (NYSE:GM) says it will cut ~160 workers and slow production at the Lake Orion assembly plant in Michigan, as low gas prices hurt demand for its Buick Verano and Chevrolet Sonic.
- GM wants to ensure it does not oversupply dealers with too many cars, which would eventually trigger heavy discounting.
- Inventory levels for the Sonic more than doubled in October, to 114 days from 54 days in September, while Verano inventory rose to 106 days at the end of October vs. 77 days in September.
Mon, Nov. 10, 8:26 AM
- Shares of General Motors (NYSE:GM) are lower in early trading after a report from the WSJ indicates the automaker ordered replacement parts for its faulty ignition switches in advance of notifying regulators about the issue.
- Delphi Automotive (NYSE:DLPH) is also wrapped up in the development with relevant e-mails from the company to GM being leaked to the media.
- As expected, personal injury attorneys and some Congressmen are hammering GM over the disclosure timing.
- GM -1.0% premarket
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