On Wednesday, Deutsche Bank maintained a Hold rating on General Motors (NYSE:GM) with a steady price target of $50.00.
The firm's analysis acknowledges GM's stock price increase on Tuesday, attributing it to a favorable response to the company's first-quarter performance and revised upward guidance. General Motors management highlighted an anticipated improvement in second-quarter EBIT, driven by increased volume and recovery in its international markets, including China. However, some potential pricing weakness was noted, which has not been evident in April so far.
General Motors' updated guidance suggests an approximate 25% decrease in EBIT for the second half of the year, primarily due to pricing challenges, despite planning around a 2-2.5% decline for the remainder of the year. The company's pricing has remained stable in April, and if this trend continues, it may positively impact the full-year outlook.
At the same time, the transition to electric vehicles (EVs) is expected to affect the product mix, as EV volumes are projected to increase in the second half with lower margins compared to internal combustion engine vehicles.
The automaker has reiterated its near-term EV targets, which include producing 200-300k EV units and achieving a positive variable profit in the second half of 2024. Additionally, GM aims for a 60-point EBIT margin improvement in 2024 and a mid-single-digit EV EBIT margin in 2025.
The company reported a 300% increase in battery module production over the past six months and plans to double the current capacity over the summer. Nevertheless, these goals present execution risks and require significant acceleration.
General Motors has indicated that it will hold its previously postponed Investor Day in the fall of 2024, although the exact date has not been set. This event is expected to provide investors with more information on EV progress and other company updates.
In light of the latest guidance, Deutsche Bank has increased its 2024 EBIT estimate for GM to $13.6 billion, slightly above the guided range of $12.5 billion to $14.5 billion, and raised its EPS forecast to $9.50 from $9.35.
Despite the upgraded forecasts, the firm maintains its price target of $50, which is based on a valuation of 2.5 times the estimated 2024 auto EBITDA plus 5 times the equity income from China. The Hold rating is sustained as the firm awaits further evidence of successful EV execution.
InvestingPro Insights
As General Motors (NYSE:GM) navigates the transition to electric vehicles and manages pricing dynamics, the latest real-time data and InvestingPro Tips offer additional context for investors. The company's aggressive share buyback initiative and the upward revision of earnings by 5 analysts for the upcoming period reflect confidence in GM's financial strategy and future performance. Additionally, General Motors is noted for trading at a low P/E ratio, currently at 5.32, which suggests the stock may be undervalued relative to its near-term earnings growth potential.
From a valuation standpoint, GM's strong free cash flow yield and low earnings multiple, with a P/E ratio adjusted for the last twelve months as of Q1 2024 standing at 5.16, indicate a potentially attractive investment opportunity. Despite concerns over weak gross profit margins, which stand at 11.47% for the last twelve months as of Q1 2024, the company's status as a prominent player in the Automobiles industry and its stock price's significant uptick over the last six months could signal resilience and investor optimism.
For those considering an investment in General Motors, leveraging InvestingPro's full suite of insights could be beneficial. There are 13 additional InvestingPro Tips available, providing a deeper dive into the company's financial health and market position. To access these insights and make informed investment decisions, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.