GM: Will The Party Continue In 2017?

| About: General Motors (GM)
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Summary

Two key pieces of data are out which I discuss.

I cover recent performance of the name financially.

Having risen 30% since my buy call, is there room to run?

A little over a year ago, I covered General Motors Co. (NYSE:GM) and told you that this company was a buy based on shareholder-friendly policies and expectations for future performance. I have continued to like the name when it dips under $30 and loved it under $27. Of course, now it is in the mid-$30s, and we might not see those levels again. In fact, barring disaster or a strong stock market pullback, it is very unlikely that we will see those levels again. Of course, when I said under $30 was a bargain, 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. The company has turned around and has now been delivering strong earnings while growing revenues. And I think in 2017, the party continues.

Why do I say that? Well, just today, two key pieces of data were released that really bode well for my buy call in the name. First, we learned that GM has picked up market share in the United States. Gaining market share is a win for any company in any sector. GM picked up about 150 basis points to have 18.8% of the market share in December. Chevy was up 13%, GMC was up 6%, and both Buick and Cadillac were up 3% in December. This takes me to the second piece of data, related to sales. Kelley Blue Book expected a 4% gain in unit sales in the month, which is very positive. However, GM rang in at a 10% rise in unit sales. Total unit sales came in at 319,108 in December, and this sets the company up for a stellar Q4 report. As far as performance is concerned, financially, the most recent period for which we have data is Q3.

I feel it is important to briefly cover the reported results for Q3 2016 in the context of understanding where revenues and earnings stand. While I have high expectations for Q4, the company's Q3 was strong. In fact, it delivered both a top- and bottom-line beat. Net income came in at $2.8 billion in Q3, or $1.76 per diluted share. This is up 104% from last year's results. Wow! Earnings per share on an adjusted basis were a strong $1.72, and this beat estimates by a strong $0.18. Further, this is a new record for the company in Q3. Adjusted earnings before interest and taxes increased to a record $3.5 billion.

Sales were slow in some regions, but in Q3, revenues were incredibly strong. GM's net revenue came in at $42.8 billion. This beat estimates by a whopping $3.51 billion. That is incredibly strong. Sales were up 10.3% compared to last year on an absolute basis. I want to also point out that nearly all sectors performed well; however, Europe continues to be a bit weak, but has improved markedly. In contrast, North America has been incredibly strong, more than enough to offset any international weakness. As a whole, the company did very well.

From my viewpoint, all available data suggests Q4 will be a huge success. Clearly, Q3 was also strong. With the company gaining market share and unit sales trouncing expectations, I expect the financials to follow suit. Incredible margins in North America and strong margins in China continue. Europe has improved drastically over years past. Record revenues, record earnings, and overall solid margins are anticipated for Q4. 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 and earnings are growing tremendously. I see the stock continuing to move 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.