Morningstar

General Motors’ Q4 Earnings Show the Market Keeps Underestimating It

Overdone recession fears have left GM stock significantly undervalued.

General Motors logo superimposed on the front grille of a General Motors car.
Securities In This Article
General Motors Co
(GM)

General Motors Stock at a Glance

  • Current Morningstar Fair Value Estimate: $75
  • General Motors Stock Star Rating: 5 Stars
  • Economic Moat Rating: None
  • Moat Trend Rating: Negative

GM Earnings Update

GM finished 2022 with an excellent fourth quarter and introduced 2023 guidance well above the Refinitiv consensus. We are not changing our fair value estimate but will revisit all modeling assumptions shortly when we roll our model forward for the 10-K. The market’s fears of macroeconomic factors hurting GM’s pricing and demand have not yet materialized, and management said January remained strong like 2022′s performance. The company does expect GM North America pricing to be a negative headwind as 2023 unfolds, which makes sense given the chip shortage has led to incentives and inventory at very low levels that we feel will only rise over time. Volume and mix should net to be slightly positive to adjusted EBIT, with mix being negative on a tough comparable to light truck’s popularity in 2022, and cost recoveries given to suppliers should offset most of the benefit from declining commodity costs.

2023 adjusted EPS guidance of $6.00-$7.00 is well above the $5.73 Refinitiv consensus, which to us says the market continues to underestimate GM’s ability to make money with its desirable vehicle portfolio. Adjusted EBIT guidance including GM Financial is $10.5 billion to $12.5 billion compared with 2022′s $14.5 billion, while adjusted automotive free cash flow is guided to $5 billion to $7 billion down from $10.5 billion in 2022. Capital spending of $11 billion to $13 billion, up from $9 billion last year, and likely lower GMNA earnings are key reasons for the cash flow decline.

Fourth-quarter adjusted diluted EPS of $2.12 rose 57% year over year to beat the $1.69 Refinitiv consensus and brought full-year EPS to $7.59, which was above the $6.75-$7.25 guided in November. GMNA’s 69% fourth-quarter EBIT growth drove the overall company’s 34% increase to $3.8 billion. Higher volume and a $2.5 billion pricing tailwind overcame mix and cost increases. GM announced a net $2 billion fixed cost reduction program to be completed by the end of 2024, but no buyouts are planned.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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