GM Ends 2020 With Good Quarter and Excellent Liquidity

General Motors GM closed 2020 with a good fourth quarter, and adjusted diluted EPS of $1.93 beat the Refinitiv consensus of $1.64. Management also introduced 2021 guidance of adjusted diluted EPS of $4.50-$5.25 that was below consensus of $5.89, which we think explains the stock falling about 5% the morning of Feb. 10. We are maintaining our fair value estimate but will reassess all valuation inputs this month when we roll our model for the 10-K. The guidance includes lost adjusted EBIT of $1.5 billion to $2.0 billion from the semiconductor shortage hitting the auto industry hard for at least the first half of 2021. GM also estimates lost adjusted automotive free cash flow of $1.5 billion to $2.5 billion from the shortage and 2021 guidance for this metric of $1 billion to $2 billion. Steel, platinum, and palladium prices will also be a strong headwind. We think the dividend remains on track to resume in mid-2021 but we think the payout could be less than the $0.38 per share quarterly rate previously paid because management is positioning GM as a growth company due to investments in electric and autonomous vehicles. Automotive liquidity is excellent at $40.5 billion, including $22.3 billion in cash and securities.

We think the stock selling off on 2021 guidance is overdone, as we don’t expect the shortage to be a permanent problem. Our calculations estimate that excluding the shortage GM’s EPS guidance would have been between $5.30 and $6.32, so we don’t see weakness in GM’s cost structure. Management said the 2018 restructuring through 2020 has yielded $4.5 billion in net cost reductions, and we don’t expect GM’s full-size pickups and SUVs to be affected by the semiconductor shortage unless things get a lot worse. It appears the firm is focusing on keeping lost production contained to the Malibu sedan, Cadillac XT4 and Chevrolet Equinox crossovers, and midsize pickups. We consider any large GM stock sell-off from the semiconductor constraint a buying opportunity.

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