Are GM shares undervalued at the current price?

[Updated 02/18/2022] General Motors Update

General Motors stock (NYSE: GM) at current price of $50 seems undervalued compared to Trefis GM Rating from $69. In recently concluded fiscal year 2021 results, the company posted revenue of $128 billion (including GM China), up 4% year-on-year. Meanwhile, EPS was recorded at $6.70 from $4.33 a year earlier. In 2021, the automotive industry was affected by the shortage of semiconductors, which resulted in a decline in sales volume, with GM selling 2,218,000 vehicles in 2021 compared to 2,547,000 vehicles in 2020.

Overall, we expect GM’s revenue to $132.3 billion for 2022. Additionally, its net income is expected to be $9.2 billion in 2022, bringing the EPS figure to $6.28. This, coupled with the P/E multiple of 11.1x, will lead to GM’s assessment around $69, or 39% more than the current market price.

Below is our previous coverage of GM stock where you can follow our view over time.

[Updated 10/14/2021] Does GM stock have an edge at $58?

General Motors stock (NYSE: GM) is up 39% from $42 to $58 since the end of 2020. In comparison, the broader S&P500 is up 16% over the same period. Trefis’ analysis of GM’s valuation is $70, implying the stock looks cheap at its current price. The automotive industry is currently affected by the shortage of semiconductors, which translates into a drop in sales volume for companies. During the recently completed third quarter of 2021, the company delivered 446,997 vehicles in the United States, down 218,195 units from a year ago due to semiconductor supply chain disruptions and historically low stocks. The company expects the fourth quarter to be smooth as it restarts production at major crossover and car factories, and anticipates improved semiconductor supply disruptions.

Overall, we expect GM’s revenue to be $136.5 billion for 2021. Additionally, its net income is expected to be $8.4 billion, bringing the EPS figure to 5.88. dollars. For fiscal 2022, revenue is expected to be around $134.8 billion, while its net income is expected to improve to $8.5 billion. This will increase the EPS figure to $5.99 which, together with the P/E multiple of 11.7x, will lead to a GM valuation of around $70, or 20% above the current market price.

[Updated 03/23/2021] Does GM’s stock have more upside?

At the current price of approximately $60 per share, we believe General Motors stock (NYSE: GM) has moderate near-term growth potential. GM stock is up 78% since the end of 2018 compared to the S&P500 which is up 57% over the same period. In 2021, we expect a marginal recovery in revenue, while earnings are expected to recover from a slump in 2020 with the impact of Covid-19. Earnings were also impacted by a one-time tax charge due to valuation allowance changes, an increase in pre-tax profit and the absence of US tax benefits related to the activity abroad. Over the past few years, the company has seen its earnings fall while its P/E multiple has increased.

GM’s revenue grew from $147 billion in 2018 to $123 billion in 2020 (including China stock revenue). Net profit margin increased from 5.4% in 2018 to 5.1% in 2020. On a per share basis, earnings increased from $5.61 to $4.36, offset by a 1.6% increase in shares in circulation.

Over the same period, the P/E multiple went from 6x to around 9.5x. The P/E improved slightly in 2021 and is currently around 13.7x.

Where is the stock going?

The global spread of the coronavirus has led to lockdowns in various cities around the world, which has affected industrial and economic activity. This, in turn, hurt consumption and consumer spending. The automotive sector was one of the hardest hit and GM was no exception as it saw its revenues and profits fall in the first half of 2020. Some recovery was seen in the second half of 2020. GM saw its revenues fall 11% to $123. billion (including China equity revenue) for 2020.

The actual recovery and its timing depend on the broader containment of the spread of the coronavirus. Our Dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Brazil and Russia. Following the stimulus from the Fed – which put a floor on fear – the market has been willing to “look through” the current period of weakness and take a longer-term view. With investors focusing their attention on 2021 results, valuations become important to finding value. Although market sentiment may be choppy, and evidence of an increase in new cases could spook investors again. In 2021, we expect GM’s revenue to reach $124.1 billion. Additionally, its net income is expected to reach $7.8 billion, boosting its EPS figure to $5.45, which, coupled with the P/E multiple of 12.4x, will lead to a GM valuation of around 68. $ per share, up 13% from the current market price. .

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Richard L. Militello