Why General Motors Will Likely Have a Quiet Earnings Report

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GM stock - Why General Motors Will Likely Have a Quiet Earnings Report

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It seems likely that the fiscal Q4 report from General Motors (NYSE:GM) on Wednesday morning won’t lead to much in the way of fireworks. In a sense, General Motors stock has already made its move: the stock rose 7% last month when the company announced full-year 2019 earnings guidance on its Capital Markets Day.

That leaves little drama around Wednesday’s release. A Q4 beat would be nice, but it isn’t likely to move GM stock much. Investors should be generally forward-looking. That seems even more true for General Motors, which is navigating potential “peak auto” worries in the near-term and shifting toward electric and autonomous vehicles over the long haul.

Indeed, options markets are pricing in just a 3.5% move for General Motors stock this week, and even that seems potentially aggressive. But the fact that GM stock is unlikely to take a big jump doesn’t mean Q4 earnings can be ignored, or that General Motors management won’t have much to talk about.

Earnings Expectations for GM Stock

As far as Q4 goes, analyst expectations seem relatively muted. The Street is looking for earnings-per-share of $1.22, down from $1.65 the year before. Consensus estimates see sales falling by 3.3%.

A major surprise seems relatively unlikely. For full-year 2018, GM already has pointed investors to the high end or above original guidance of $6.20. (The Street is at $6.32.) And annual unit sales figures have already been released.

Meanwhile, last month, GM gave 2019 EPS guidance of $6.50-$7.00. That news led GM stock to climb 7%, and it has continued to rally. The stock now is threatening to take $40 for the first time since July.

As far as the numbers go, then, big news almost certainly isn’t coming. Full-year guidance isn’t going to change given it was announced less than a month ago. It would take a huge beat or miss in Q4 to undercut (or boost) confidence in the 2019 outlook. This is why options traders themselves have low expectations: There’s no fundamental news that’s going to be able to move General Motors stock all that much.

Key News for General Motors Stock?

That said, there should be a few key points to which investors should pay attention. Management likely will discuss any potential supply disruption caused by last week’s winter storm. Similarly, management should address whether inventory levels are satisfactory after a week where new auto sales were likely minimal.

More broadly, investors are trying to get a sense of whether the story still is on track. GM stock has rallied in recent weeks amid optimism toward its longer-term plans. Q4 earnings serve as a chance to double-check that optimism, so to speak.

Finally, white-collar layoffs at GM were announced this week, and GM has already become a target of President Trump. It will be interesting to see if GM management has any comment on its slimmed-down structure, or if Trump or any other politicians use earnings to decry the company’s cost cutting.

Stay the Course

All told, this is a report where no news is good news. Investors like the GM plans to slim down, one reason General Motors stock continues to outperform that of Ford Motor Company (NYSE:F). GM is making headway in autonomous and electric vehicles as it competes with everyone from Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) to Toyota (NYSE:TM) to Tesla (NASDAQ:TSLA). The company gave a detailed outlook for its EV/AV businesses last month, and there shouldn’t be any reason to update that outlook or change tack.

So there’s not going to be much here to change the market’s mind … hopefully. The good news came in January, and to some extent, it is priced into GM shares. (Admittedly, at 6x earnings, those shares still suggest a near-term decline in profits.)

So General Motors simply needs to not have any bad news to keep its story intact. From there, it’s a matter of what investors are willing to pay for that story.

As of this writing, Vince Martin did not hold a position in any of the aforementioned securities.

After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets.


Article printed from InvestorPlace Media, https://investorplace.com/2019/02/general-motors-quiet-earnings-report-gm-stock-fimg/.

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