There’s no denying that General Motors (NYSE:GM) stock is cheap. GM stock trades at about six times the low end of its 2019 earnings per share guidance range of $6.50-$7.00. The dividend yield of GM stock is about 4%, adding to the attraction of General Motors stock as a value name.
The question is, when is the valuation of GM stock going to increase? GM is slated to report its first-quarter results on Tuesday morning, but that’s unlikely to be much of a catalyst for General Motors stock. GM already has disclosed its unit sales for the quarter, so analysts’ earnings estimates are likely to be relatively accurate.
But beyond all that, the problem with GM stock is that investors don’t really seem to care about what the company is doing in 2019. Investors’ eyes are on the risks ahead, and it seems unlikely that GM can do anything on Tuesday to change their minds.
Earnings Expectations for GM
Analysts on average are predicting that GM’s revenue fell 3% year-over-year in Q1, and there is justification for that estimate. At the beginning of the month, GM disclosed that its unit sales had fallen 7% year-over-year in the quarter. But helping to limit the size of the predicted year-over-year decline was the fact that GM’s commentary around prices, particularly those of pickups, was positive.
On the earnings front, analysts’ expectations do seem a bit low. The consensus EPS estimate of $1.10 suggests a 23% year-over-year decline. On the Q4 earnings call, management predicted that GM’s Q1 results would be relatively weak, citing the impact of a new SUV launch.
Still, given the company’s guidance for both pricing strength on higher-end models in Q1 and an improved performance by the expensive Cadillac brand, it does seem like GM’s Q1 EPS could beat expectations.
All that said, whatever the exact numbers, management is expecting relatively weak results. That alone is one reason not to expect too much of a reaction by GM stock to the report. Barring a change in GM’s full-year guidance – which seems unlikely – investors aren’t going to react strongly to the report. Indeed, the options markets are pricing in just a roughly 4% move in General Motors stock next week. Traders looking for fireworks might want to look elsewhere.
The Longer-Term Question for GM Stock
The broader question, however, is whether the automaker’s 2019 performance can really move GM stock higher. GM has outperformed rival Ford Motor Company (NYSE:F) since returning to the public markets , but the gains of General Motors stock have been limited.
Additionally, “peak auto” concerns continue to dominate sentiment toward the industry, as they have for years. On this site, Dana Blankenhorn argued that investors simply don’t trust Ford stock; I’m not sure if their feeling towards GM is all that different.
The industry on the whole has real challenges. Tesla (NASDAQ:TSLA) is pushing the sector towards electric vehicles, and European automakers like Volkswagen (OTCMKTS:VWAGY) and BMW (OTCMKTS:BMWYY) are following TSLA’s lead. Autonomous vehicles could upend the entire industry, and in that category GM clearly is behind Alphabet (NASDAQ:GOOG,GOOGL) unit Waymo and Tesla (at least for investors who bought the hype of the latter company’s Autonomy Day).
The core issue for GM and GM stock is that automobile sales are likely to decline, not rise, going forward. And for GM’s fixed-cost business model, that’s a very real problem that suggests declining earnings and single-digit price-earnings multiples for GM stock.
The argument over General Motors stock is basically an argument over whether those long-term concerns are valid or priced into the shares. As a result, it’s going to take General Motors much more than one quarterly report to really change investors’ outlook .
As of this writing, Vince Martin holds a bearish position in Tesla options. He has no positions in any other securities mentioned.
