On Jul 10, we maintained our Neutral recommendation on General Motors Company (GM). We appreciate the company’s focus on the emerging markets. In addition, the stock has been reinserted into the Standard & Poor’s 100- and 500-stock index recently. However, we are concerned about its significant exposure to Europe as well as global economic weakness.
Why the Reiteration?
On May 2, General Motors reported a 28.0% fall in earnings per share to 67 cents in first quarter 2013, despite beating the Zacks Consensus Estimate by 11 cents. The decline in earnings was due to lower profits generated from all the geographic operations of the company, except Europe.
Revenues in the quarter slid 2.4% to $36.9 billion, despite a 3.6% rise in retail unit sales to 2.4 million vehicles globally. However, it was higher than the Zacks Consensus Estimate of $36.4 billion.
Following the release of the first-quarter results, the Zacks Consensus Estimate for fiscal 2013 increased 0.9% to $3.34 per share. The Zacks Consensus Estimate for fiscal 2014 rose 0.5% to $4.39 per share. Currently, General Motors share maintains a Zacks Rank #3 (Hold).
General Motors is expanding its footprint in emerging markets including Brazil, China and India. The company expects its global expansion strategy to enhance its sales and help meet the rising demand.
General Motors replaced H.J. Heinz in the Standard & Poor’s 500 and Standard & Poor’s 100 indices after the close of trading on Jun 6, 2013. The automaker was removed from the S&P 500 index in 2009 due to bankruptcy filing and $50 billion government bailout. The return of the automaker in the America's benchmark stock market indicates that the automaker has been able to enhance investor value. It is expected that this move will generate strong demand for its stock, thus pushing up the price.
However, the company faces challenges from the ongoing Euro-zone financial crisis. The European division saw a 17.6% fall in revenues to $22.1 billion in 2012 and an 8.3% decline to $4.8 billion in the first quarter of 2013. In addition, strengthening of the U.S. dollar against most global currencies where General Motors operates will mar the company’s sales.
Other Stocks to Look For
Some stocks that are performing well in the automotive industry include Nissan Motor Corp. (NSANY), Fuji Heavy Industries Ltd. (FUJHY) and Honda Motor Co. (HMC). Both Nissan Motor and Fuji retain a Zacks Rank #1 (Strong Buy), while Honda Motor holds a Zacks Rank #2 (Buy).
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