GM

General Motors (GM) Earnings Preview

With technology changing the landscape, the automobile industry is galloping through a transformational phase. At the forefront of this remarkable journey is General Motors Company (GM). As GM announces its Q1 FY2017 financial results on Friday, April 28, here’s a look at what makes GM a good buy.

Financials

GM has a strong financial track record, having well recovered from its 2009 bankruptcy filing and now witnessing a robust revenue growth, comfortable cash flows and rising earnings per share (EPS).

GM reported a revenue of $166.4 billion during FY2016, a rise of 9.2% vis-à-vis FY2015. The company’s EPS was at $6, up 1.5% year-on-year while its automotive operating cash flow was $14.3 billion. During FY2017, GM expects to generate higher revenues, as compared to FY2016.

Cost Efficiencies

With the intent to reduce costs and improve efficiency, GM has been indulging in restructuring initiatives, labor modifications and superior quality control to avoid material vehicle recalls. This is corroborated by the fact that in the beginning of 2017, GM raised its cost efficiency target for 2015-2018 by $1 billion to reach $6.5 billion.

Market Share

GM boasts of leadership positions in the largest and fastest-growing automotive markets around the world. In the U.S. during FY2016, GM was the market leader with approximately 16.5% share. During FY2016, GM sold a record 10 million vehicles globally, registering an increase of 1.2% over FY2015. The company now expects its global volume from new or refreshed vehicles to grow to 38% from 2017-2020, up by 12% during 2011-2016.

Brand & Product Portfolio

GM and its partner companies form a portfolio of the most reputed brands (such as Chevrolet, Cadillac) which are sold across 120 countries globally. In March 2017, GM announced an agreement under which GM’s Opel/Vauxhall subsidiary and GM Financials European operations joined the PSA Group in a transaction valued at €1.3 billion and €0.9 billion, respectively. This step supports GM’s efforts towards continued deployment of resources to higher-return opportunities.

During 2011-2016, out of GM’s new or refreshed vehicles sales globally, 62% were cars and 38% trucks, SUVs and crossovers. However, given the rising consumer preferences for larger vehicles (light trucks, SUVs and crossovers) over passenger cars, GM is working to change the product proportion from 62:38 to 48:52 during 2017-2020.

Embracing Technology

With a growing demand for shared mobility, there is a good incentive for rental car companies and OEM manufacturers to invest in this segment. The car sharing market is projected to exceed $16.5 billion by 2024 as per a recent report. In 2016, GM invested $500 million in Lyft, the U.S. based ride-hailing company, which was followed by an investment in Yi Wei Xing (Beijing) Technology Co. Ltd., a leading car-sharing technology solution provider in China.

Back in January 2016, GM launched a new car-sharing service, Maven, which until March 2017 has further launched three products and grown to 17 cities in the U.S. and Canada. It has a base of more than 25,000 members.

GM has also been actively involved in the development of autonomous vehicle technology since the beginning of 2016; its investment in Lyft and its acquisition of Cruise Automation were made to boost its efforts in this direction. While GM began testing autonomous Chevrolet Bolt EVs last summer, the production of its next-generation autonomous test vehicles is scheduled to begin in 2017. According to BCG estimates, the market for autonomous vehicles (partially and fully) is expected to be around $42 billion by 2025, further growing to nearly $77 billion by 2035.

GM is active in the alternative propulsion segment as well. A recent report suggests that GM will be launching 10 electric and gasoline-electric hybrid vehicles in China by 2020.

Supplementary Businesses

GM is capitalizing adjacent businesses, namely consumer financing as well as service parts and accessories. GM Financial (GMF) has grown rapidly in recent years in terms of profitability and has helped its business in terms of customer satisfaction and retention. GM targets to more than double GMF’s earnings between 2014 and 2018.

The market for service parts and accessories is a segment that operates on excellent margins. GM’s aftermarket is expanding fast, especially in countries such as China where many customers are just beginning to enter the aftermarket. Additionally, OnStar and Maven are the other two adjacent businesses poised to grow in coming times.

Share Buybacks & Dividends

GM returned $4.8 billion to shareholders during 2016 through share buybacks and dividend payouts. During 2012-2016, the company has returned more than $18 billion to shareholders. It has an authorization to repurchase up to $9.0 billion by the end of 2017, out of which $6 billion has been utilised.

Final Word

General Motors is investing to innovate itself to fit customer preferences while strengthening its core business. It’s making itself leaner by unloading underperforming divisions while reallocating resources to areas of potential growth. Overall, GM is setting a great example of result orientation preparation for the future of automobile industry.

The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration.

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


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

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