It’s been a good week for General Motors Company (NYSE:GM) shareholders, because the company has just released its latest quarterly results, and the shares gained 8.5% to US$37.47. Revenues were US$35b, approximately in line with whatthe analysts expected, although statutory earnings per share (EPS) crushed expectations, coming in at US$2.78, an impressive 105% ahead of estimates. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, General Motors’ eleven analysts are now forecasting revenues of US$132.1b in 2021. This would be a meaningful 14% improvement in sales compared to the last 12 months. Per-share earnings are expected to bounce 109% to US$4.90. Yet prior to the latest earnings, the analysts had been anticipated revenues of US$133.4b and earnings per share (EPS) of US$4.55 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target rose 6.9% to US$44.59, suggesting that higher earnings estimates flow through to the stock’s valuation as well. There’s another way to think about price targets though, and that’s to look at the range of price targets put forward by analysts, because a wide range of estimates could suggest a diverse view on possible outcomes for the business. Currently, the most bullish analyst values General Motors at US$72.00 per share, while the most bearish prices it at US$27.00. With such a wide range in price targets, analysts are almost certainly betting on widely divergent outcomes in the underlying business. With this in mind, we wouldn’t rely too heavily the consensus price target, as it is just an average and analysts clearly have some deeply divergent views on the business.
Looking at the bigger picture now, one of the ways we can make sense of these forecasts is to see how they measure up against both past performance and industry growth estimates. One thing stands out from these estimates, which is that General Motors is forecast to grow faster in the future than it has in the past, with revenues expected to grow 14%. If achieved, this would be a much better result than the 3.1% annual decline over the past five years. By contrast, our data suggests that other companies (with analyst coverage) in a similar industry are forecast to see their revenue grow 22% per year. Although General Motors’ revenues are expected to improve, it seems that the analysts are still bearish on the business, forecasting it to grow slower than the wider industry.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around General Motors’ earnings potential next year. On the plus side, there were no major changes to revenue estimates; although forecasts imply revenues will perform worse than the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.