Credit: Shutterstock photoAs the car market continues to power along, with nearly 17 million new cars expected to be sold in 2015, shares of GM (GM) are likely to continue to ride higher, following strong second quarter results.
Detroit-based GM is poised to see earnings move higher thanks to cost management and cost performance in North America, Goldman Sachs analyst Patrick Archambault wrote in a research note following earnings.
Despite this, Archambault believes margins are likely to peak this year due to 2016 launches in the passenger car market and concerns about the SUV market. The analyst raised earnings estimates, but kept his neutral rating following the quarter.
GM reported adjusted earnings of $1.29 a share on $38.2 billion. Analysts had expected the company to earn $1.08 a share on $40.62 billion in revenue.
"We said our goal was to improve our earnings and margins this year, and we are on-plan," GM CEO Mary Barra said in a statement. "Consistent with that, we believe our results in the second half of the year will be even better than the first half, and we're confident we will meet our 2016 targets."
Fiat Chrysler (FCAU) CEO Sergio Marchionne has recently made overtures to GM about a mega merger between the two companies, but has so far, been rebuffed.
Though there have been concerns about China, where GM has a presence with joint ventures, due in part to weak demand and price cuts, the American automaker still holds a 14% market share. CFO Chuck Stevens said on the company'searnings callhe still expected the market to reach 35 million cars sold annually, up from 23 million in 2014.
GM still has significant amounts of cash on its balance sheet, ending the quarter $22.8 billion. In the past, GM's strong balance sheets, which includes a additional $12 billion in liquidity has attracted activist investors, showcasing GM's value. The company recently initiated a buyback of $5 billion and a boost to its dividend, placating investors.
Citi analyst Itay Michaeli, who rates shares buy with a $50 price target, believes that these factors are likely to help boost GM's earnings multiple, ultimately boosting GM's stock.
"A strong [second quarter and] reassuring guide could serve as a turning point for sentiment as the quarter clarified risk/reward, injected needed visibility into China and debunked recent bear points (truck incentives)," Michaeli wrote in a note. "We still think it’s GM in '15."
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
