Upcoming Earnings Report for GM Stock Should Deliver Few Surprises
General Motors (NYSE:GM) will report earnings on Aug. 1 before the market opens. Although the company has a history of beating earnings, the delay from Cruise, GM’s self-driving unit, will probably weigh on investor’s minds.
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However, given the history of GM stock, investors still should not expect the quarterly report to inspire a significant reaction from traders.
Cruise News Could Influence Reaction to Earnings
The company announced a commercial launch of a self-driving car would not occur in 2019. GM reported this delay as other competitors have stated it would take more time and money than expected to launch a ride service that uses self-driving cars.
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GM stock did not see a significant move following this news. We may not know what effect this will have on the earnings report. However, we do know that Wall Street expects second quarter earnings to come in at $1.43 per share. If this number holds, it will come in 21% below last year’s figure when GM reported $1.81 per share in earnings. Analysts also forecast revenues of $36.15 billion, 1.6% lower than the $36.76 billion reported in the same quarter last year.
The company has beaten earnings estimates in each of the last four quarters. Moreover, General Motors stock has had a good 2019 in many respects. The GM stock price has risen by around 20% since the beginning of the year. General Motors trades at about $40.60 per share as of the time of this writing.
Despite 2019 Surge, GM Remains a Dividend Stock
Even after that gain, it still offers significant value to investors. GM stock trades at a forward price-to-earnings (PE) ratio of about 6.5. Moreover, annual dividends of $1.52 per share yield close to 3.75%.
In fairness, peers such as Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU) offer a similar value proposition. However, Fiat Chrysler made its first payout since 2016 this year. Ford’s dividend has fallen back to 2015 levels. GM’s payout has not fallen since it reintroduced the dividend in 2014. The annual payout has remained at $1.52 per share since 2016.
Longer term, most of the profit from owning GM stock has come from the dividends. As mentioned before, GM has risen about 20% this year. Unfortunately for long-term investors, General Motors stock has increased by only 23% since it resumed trading in 2010. Moreover, analysts expect profit growth of only 1.2% this year. They forecast earnings decline of 5.6% in fiscal 2020 with a further decrease predicted for 2021.
Should I Buy GM Stock Before Earnings?
The quarterly report for GM stock will probably deliver an earnings beat, but few additional reasons to either buy or sell GM stock. GM usually beats earnings estimates, but those estimates show a significant drop from last year’s second-quarter number. Consequently, I see few surprises there.
So far, traders have shown little reaction despite the delays from Cruise regarding the launch of a self-driving car. However, the focus on self-driving cars seems to substantially lie outside of the traditional auto industry. With companies such as Nvidia (NASDAQ:NVDA), Intel (NASDAQ:INTC), and Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) developing this technology, what GM and its peers do in-house has drawn surprisingly little interest.
Still, I think those hoping for multiple expansion in GM stock will have to wait longer. GM has maintained an average PE ratio of 18.75 over the last five years. Sadly, much of that increase could come from falling profits.
This means two things. First, the likely returns in GM stock will please only income-oriented investors. Second, whether these investors buy General Motors stock before or after the Aug. 1 earnings report probably makes little difference.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.
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