General Motors Corporation (NYSE:GM) beat earnings estimates for its fourth quarter, and the stock responded by rising slightly in premarket trading, opening for trade Feb. 6 at $40.06 per share.
The company said it had $6.6 billion in operating cash flow from car sales during the fourth quarter. Although it lost $4.9 billion on a GAAP basis, using standard accounting rules, it said it had EBITDA of $3.1 billion non-GAAP. Revenues were $37.7 billion. For the full year, the company had earnings of $6.65 per share on revenue of $145.6 billion.
Adjusted earnings came in at $1.65 per share, handily beating the expected $1.38 per share and even the “whisper number” of $1.50 per share. The company set a $8 billion capital budget for 2018, which will include $1 billion to be spent on autonomous cars. It sought approval to build a vehicle without a steering wheel in January.
Berra the Car Star
The company’s performance adds luster to the legend of Mary Barra, who became CEO at the end of 2013. Under Barra, the stock has become a regular income play, a dividend now yielding 3.7%, and usually sustained by earnings several times over.
The consistent earnings performance under Barra has yet to light a fire under the stock price, which has barely moved on her watch, as investors remain skeptical of a company that required a huge federal bailout after the 2008 market collapse to stay in business. But over the last several months, General Motors has regained its title as the country’s most valuable car company from Tesla Inc (NASDAQ:TSLA) and just as many analysts now suggest buying the stock as holding it.
Barra credited rigorous cost controls with the earnings improvement but the company also re-focused on the North American market during the year, selling operations in Europe and exiting markets in Africa and India. The company’s SUVs are selling well.
Barra’s performance looks especially good next to arch-rival Ford Motor Company (NYSE:F), whose stock is down 16% just in 2018. Ford’s poor performance, however, has made it a much better income play than GM, with its 15 cent per share dividend now yielding 5.7%.
General Motors Believers?
Our Bret Kenwell wrote last month that GM would be a good investment on a pullback, and the stock is down 10% since then, meaning it should be in buy territory. The company still sells at less than 9 times earnings, making it very cheap on a price-to-earnings basis.
But playing the market perfectly and even leading the self-driving revolution isn’t going to bring a return to shareholders unless more investors become convinced they can get a capital gain on GM stock.
General Motors CEO Barra, who was considered a lightweight when she took the CEO job, is now being lauded by the media as a visionary who has firmed up the balance sheet, cut unprofitable ventures and delivered consistent profits while investing in the future.
Times are great for GM, but what about investors? Their stock isn’t worth much more than it was at the start of 2014, the dividend hasn’t increased in two years, and with the 10-year debt now selling at over 2.7% the yield doesn’t look as attractive as it did.
The Bottom Line on GM Stock
Even while celebrating 2017, Barra expects 2018 earnings to be flat, despite a growing economy, and that is not a compelling investment thesis.
The reason I buy a car stock today is for income, and GM’s solid results thus make Ford an even more compelling choice for me in 2018 than it was last year. What would change that for me would be a large rise in the GM dividend, and that remains where it was last year, 38 cents per share. Until that happens, Ford is still the play.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in F.
