If General Motors (GM) shares are trading near their 2024 high, does that mean General Motors is now overvalued? Not at all, as the company’s earnings are robust enough to justify the share price, even after a recent rally. Overall, I’m bullish on GM stock because General Motors is a very reasonably valued company, but also a powerful earnings beater.
General Motors, headquartered in Detroit, produces conventional and electric vehicles. Until September, interest rates remained at high levels, making it more difficult for consumers to pay car loans. That has undoubtedly been a problem for General Motors.
Still, JPMorgan Chase (JPM) analyst Ryan Brinkman stated that General Motors is “on a roll.” Brinkman even assigned GM stock an Overweight rating. Does General Motors really deserve such a positive rating after a long period of high interest rates? After digging into the data, you’ll surely agree that this iconic American automaker is indeed “on a roll” in 2024.
General Motors Chief Financial Officer (CFO) Paul Jacobson boldly stated, “Our year-over-year performance was very strong,” after the automaker announced its third-quarter 2024 results and outlook going forward. However, Jacobson’s confidence is backed by the data. First, General Motors generated revenue of $48.8 billion, up 10.5% year over year. Additionally, this result exceeded the analysts’ consensus estimate of $44.7 billion in quarterly revenue.
General Motors’ numbers also support Jacobson’s confident attitude, as does Brinkman’s comment that he is doing well. For the third quarter of 2024, the automaker reported adjusted earnings of $2.96 per share. That’s up 29.8% year over year and well above Wall Street’s consensus forecast of $2.38 per share in adjusted earnings.
Furthermore, General Motors posted an operating profit of $4.1 billion, while analysts expected only $3.3 billion. In other words, this was truly an excellent quarter for General Motors, even though interest rates were still high in the third quarter. Now think about how a series of rate cuts in late 2024 and 2025 could help General Motors accelerate its sales and profits even faster. There’s no guarantee this will happen, but it’s a possibility worth considering.
This was a beat-and-raise report for General Motors, as the company raised its adjusted EPS guidance for fiscal 2024 to $10-$10.50. Previously, the company’s outlook was for earnings per share of $9.50-$10 for 2024.
That may not even be the most interesting guided walk. General Motors also raised its adjusted free cash flow (FCF) guidance for full-year 2024 to $12.5 billion-$13.5 billion. That’s significantly higher than the company’s previous guidance range of $9.5 billion to $11.5 billion.
Again, there are no guarantees that reality will meet or exceed expectations. Nevertheless, General Motors and its management remain optimistic. On this topic, Jacobson explains: “We have been able to grow our retail share with above-average pricing, below-average incentives and well-managed inventory. This has put us in a position to update the guidelines again.” There will be doubters and skeptics, but Jacobson has the aforementioned Q3 2024 results to back up his confident claims.
I’m a values hunter, and maybe you are too. It’s tempting to assume that General Motors might be overvalued after GM stock’s post-earnings rally. You may have noticed that the General Motors share price has zoomed past $50, and the stock is up 80% in the last twelve months.
However, you don’t have to rely solely on the stock’s price action. As the old saying goes, price is what you pay, but value is what you actually get. We just discussed General Motors’ strong results, and these are very relevant when assessing the company’s value.
Even after the share price rally, General Motors’ adjusted (non-GAAP) twelve-month price-to-earnings ratio is still quite reasonable, at just 5.44x. For reference, the median price-to-earnings ratio for the sector is 14.55x. So we can conclude that General Motors’ profits justify the company’s apparently high stock price.
On TipRanks, GM comes in as a Moderate Buy based on 10 buys, six holds, and three sells assigned by analysts over the past three months. General Motors’ average price target is $55.71, implying 5.67% upside potential.
If you’re wondering which analyst to follow if you want to buy and sell GM stock, the most accurate analyst covering the stock (over a one-year period) is Dan Levy of Barclays (BCS), with an average return from 24.59. % per assessment and a pass rate of 68%.
See more GM analyst reviews
General Motors exceeded Street revenue and earnings expectations while showing significant growth in the third quarter of 2024. Additionally, the company’s management expects strong earnings for the full year 2024.
Meanwhile, value-oriented investors don’t have to worry too much about General Motors being overvalued, even after the stock market rally. Therefore, I am absolutely optimistic about General Motors’ future prospects and would consider an equity position in GM stock.
