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General Motors Stays Neutral

Zacks Equity Research

On May 9, we maintained our Neutral recommendation on General Motors Company (GM), based on its focus on the emerging markets and improvement from its major expansion plan across the globe. However, we are concerned about its significant exposure to Europe and year-over-year decline in profits in the first quarter of 2013.

Why Maintained?

On May 2, General Motors Co. 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 decreased 4.9% to $3.31 per share. The Zacks Consensus Estimate for fiscal 2014 dropped 2.2% to $4.37 per share. Currently, shares of General Motors 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 is expected to benefit from the agreement with the United Auto Workers (:UAW) and Canadian Auto Workers (CAW) union. Under these agreements, the company will be able to minimize its labor costs.

However, the company faces challenges from the ongoing financial crisis in the euro zone. 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 of the currencies of countries where General Motors operates will mar the company sales.

Other Stocks to Look For

Few stocks that are performing well in the broader industry include Visteon Corp. (VC), Tower International, Inc. (TOWR) and Denso Corp. (DNZOY). All the companies carry a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on GM

Read the Full Research Report on VC

Read the Full Research Report on TOWR

Read the Full Research Report on DNZOY

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