General Motors shareholders have crushed the market this year.
It’s been one year since the United Auto Workers went on strike, affecting the Big Three U.S. automakers. Since that work stoppage ended on Oct. 30, the stock of General Motors (GM -1.72%) has soared by nearly 75%.
That’s about the right level for GM stock right now, according to Bernstein analyst Daniel Roeska. In a new report, Roeska lowered his rating on the stock from the equivalent of a buy to a hold and reduced his firm’s price target to $53 per share. The stock fell on that news, even with the shares hovering about 10% below the new price target.
Will EVs help or hurt GM?
The rise in GM stock over the last year came as the company has increased its 2024 estimates for earnings per share and cash flow. The company has used that excess cash flow to return capital to shareholders by repurchasing shares and increasing its dividend payout.
Those share repurchases have reduced the share count by 18% year over year, giving shareholders a larger piece of the company. GM also recently announced a new $6 billion share repurchase authorization.
But Roeska sees some clouds on the horizon as well. Rising inventories for new vehicles and pricing pressure from strong competition could weigh on results. The company is spending capital to increase its lineup of electric vehicles (EVs) amid a slowdown in EV sales growth.
GM just announced it will be temporarily laying off 1,700 workers at its Kansas factory as it retools the building to prepare to manufacture its new Chevrolet Bolt EV. It remains to be seen whether the company’s bet on EVs will pay off. Unlike rival Ford, GM doesn’t have as much diversity in commercial vehicles or hybrids to balance any softness in EV demand.
Roeska’s downgrade makes sense after the big gain in GM shares this year. Even selling the stock would make sense for some. Long-term investors focusing on income can get a much higher dividend yield from Ford stock.
Howard Smith has no position in any of the stocks mentioned. The Motley Fool recommends General Motors and recommends the following options: long January 2025 $25 calls on General Motors. The Motley Fool has a disclosure policy.
