Margin Growth Leads GM to Beat Street’s Estimates, Guidance

General Motors (GM) has beat Wall Street’s third-quarter estimates, and is guiding toward the high end of its 2021 earnings forecast. GM reported $2.7 billion in adjusted net income, up from $1.5 billion a year ago, as it benefited from strong margins in North America and China. The company said that it expects to generate free cash flow of at least $6 billion for the full year 2019

and anticipates adjusted earnings per share of between $4 and $5 for 2020.

GM also said it would invest another $1 billion in its electric vehicle program over the next two years, bringing total planned investments to $4.5 billion by 2022. The company says that capital spending will be funded with cash flow and existing cash balances, not new debt or equity issuance. GM has previously announced plans to launch 20 vehicles with self-driving technology by 2023.

The investment is subject to regulatory approvals and closing conditions, which are expected in the first quarter of 2020. The company said that it had not reached an agreement with Volkswagen on a potential acquisition of its financing arm or any other assets. Our analysis leads us to believe that GM Financial has greater value as an independent entity.

We are not changing our rating or price target for GM shares, as the company’s valuation already reflects many of these positive factors. We are keeping our US Autos coverage with Overweight rating.

Mr. Ammann said that GM Cruise is now one of the most valuable automotive assets in the world, with an implied valuation of about $18 billion. GM Cruise has raised about $5 billion in private funding, which places its post-money valuation at about $13.6 billion, he said. Including the most recent round, estimates by Goldman Sachs and Morgan Stanley value GM Cruise at between $19.5bn to $23.4bn respectively.

We are not changing our rating or price target for GM shares, as the company’s valuation already reflects many of these positive factors. We are keeping our US Autos coverage with Overweight rating.

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