Recalls Drag General Motors Down to Sell - Analyst Blog


On Jun 25, 2014, Zacks Investment Research downgraded General Motors Company ( GM ) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).

Why the Downgrade?

General Motors has been facing extensive negative media coverage recently over a spate of recalls as well a large fine. This has led to downward estimate revisions over the last few months.

In the last 30 days alone, 4 out of 9 analysts covering the stock reduced their earnings estimates for 2014. As a result, the Zacks Consensus Estimate for General Motors' 2014 earnings per share fell to $3.12 from $3.17 during this period. Moreover, this estimate implies a 1.47% decline in earnings from 2013.

General Motors' recent earnings results have also been below expectations. The company reported negative earnings surprises in the last 2 quarters, while the average surprise over the last 4 quarters was a negative 3.57%.

General Motors has announced 44 recalls this year, covering over 20 million vehicles in North America alone. It will have to incur a charge of $700 million in the second quarter of 2014 for repairing the vehicles recalled during the quarter. It recorded a $1.3 billion charge for recall-related repairs in the first quarter.

Additionally, General Motors agreed to pay a fine of $35 million to the U.S. safety regulators for the late recall of 2.6 million cars with faulty ignition switches. Currently, this is the maximum amount the government can fine a company.

General Motors is also facing many lawsuits and investigations related to the issue, which also resulted in negative publicity. Last week, a $10 billion lawsuit was filed against the company demanding compensation for millions of its car and truck owners for the loss of resale value of their vehicles. All these factors have led to decline in shareholder value.

Other Stocks to Consider

Some better-ranked automobile stocks worth considering are Dorman Products, Inc. ( DORM ), Standard Motor Products Inc. ( SMP ) and Douglas Dynamics, Inc. ( PLOW ). All these stocks carry a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GENERAL MOTORS (GM): Free Stock Analysis Report

STANDARD MOTOR (SMP): Free Stock Analysis Report

DOUGLAS DYNAMIC (PLOW): Free Stock Analysis Report

DORMAN PRODUCTS (DORM): Free Stock Analysis Report

To read this article on click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: GM , SMP , PLOW , DORM

More from

Related Videos

Freshman Finance 101
Freshman Finance 101                
Spot the Dropout RRC
Spot the Dropout RRC                
Power on/Power Off
Power on/Power Off                  



Most Active by Volume

  • $16.34 ▼ 0.12%
  • $10.64 ▲ 1.33%
  • $112.76 ▼ 0.47%
  • $5.86 ▲ 1.38%
  • $28.54 ▲ 0.42%
  • $104.31 ▼ 1.24%
  • $13.87 ▲ 0.95%
  • $10.40 ▲ 0.97%
As of 8/31/2015, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by