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Why Ford Shares Rise and GM Shares Unchanged After Q3 Report

General Motors’ world headquarters is located at the Detroit Renaissance Center.

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DETROIT – Both Ford Motor and General Motors beat Wall Street expectations for the third quarter, but GM shares were unchanged as Ford shares surged to a new 52-week high during Thursday morning trading.

At first glance, the results of both carmakers were similar. They easily beat the analyst consensus on earnings and slightly beat earnings expectations. They also partially raised their forecast for 2021. But after taking a closer look at the results and executive comments, analysts said Ford has made more progress and drew a more optimistic outlook than GM.

The results pushed Ford stock up a whopping 13% to $ 17.58 a share during Thursday’s trading. The stock closed at $ 16.86 a share, up 8.7%, compared with a 2.4% daily jump for GM, which closed less than half a percentage point at $ 54.24 a share. GM’s market cap is about $ 80 billion, compared to Ford’s $ 66 billion.

Differences between third-quarter income statements ranged from profit forecasts and continuing shortages of semiconductor chips to their autonomous vehicles and stock dividends.

More on these and other topics will be released after the results of reports from two of America’s largest automakers released on Wednesday.

Earnings

GM reported adjusted earnings per share of $ 1.52 versus 96 cents expected from Refinitiv. Its revenue was $ 26.78 billion against the expected $ 26.51 billion. Net income for the quarter was $ 2.4 billion, down 40% from a year earlier.

“Yesterday’s severe market backlash to GM’s strong Q3 outlook, but the unchanged 2021 outlook, in our view, reflected some disappointment that GM did not raise its outlook amid improved industry conditions, as well as investor fears that The implied Ebit for Q4 represents a low exit rate from current ones in 2022, “Deutsche Bank analyst Emmanuel Rosner wrote in a note to investors on Thursday.

Perspectives

Ford also kept its revised forecast of free cash flow for the year at $ 4 billion to $ 5 billion, while GM cut it to about $ 1 billion from $ 1 billion to $ 2 billion. The decline is due to the cost of fine-tuning cars that were previously built without chips, officials said.

“This is less than what Tesla produced in the third quarter alone. Although GM FCF has been hit hard by working capital this year, it is necessary to take a step back and realize that 2021 will be a historically successful year for the industry in terms of price, composition and costs, “Morgan Stanley analyst Adam Jonas wrote in a note to investors on Wednesday. …

Assuming GM’s fourth-quarter earnings are close to the upper end of its forecast, that would mean its earnings before interest and taxes, a key performance indicator, would be about $ 2 billion instead of the $ 2.6 billion Wall had hoped for. street, analyst at Credit Suisse. Dan Levy said Wednesday in a note to investors.

Levy described Ford’s appeal in a separate note as “the most optimistic” from the automaker in a long time.

Chip supply

Barclays analyst Brian Johnson noted that while Ford’s third-quarter shipments were better, GM is still leading in margins when the last two quarters are combined.

“By combining the two quarters, Ford will have an EBIT margin of 6.7%, while GM will have an EBIT margin of 10.6% (pre-adjusting all Bolt costs and reimbursements), indicating that GM still ahead in execution, ”he said Thursday. investor note.

AV

Analysts appear to be more optimistic about Ford’s plans to monetize its Argo AI autonomous vehicle business with potential additional revenue than GM’s plans – for now – to keep its cruise operations on its own.

“Ford appears poised to monetize Argo, while GM is focusing on vertical integration between Cruise and GM,” Johnson said, calling it a “significant catalyst” for Ford.

In its investor presentation, Ford noted that executives “fully support Argo AI’s access to government funding.” This compares to GM CEO Mary Barra telling investors on Wednesday that the company views vertical integration as a “key factor” for its controlling subsidiary.

Dividends

GM said nothing on Wednesday about the dividend recovery. GM CFO Paul Jacobson told investors earlier this month that the company will restore dividend payments when the market becomes more stable.

Lawler explained that the rebound in Ford’s dividend was due to the firm’s business resilience. He said Ford is not limited in capital and is confident he can finance an aggressive recovery plan he calls Ford +. The plan includes an investment of billions in electric and autonomous vehicles, as well as dividend payments.

The size and timing of the dividend recovery surprised many analysts. BofA Securities analyst John Murphy called Ford’s dividend recovery “preemptive” given the current volatility in the auto market. He, like other analysts, also noted that Ford needs to invest in its recovery plan.

Some analysts expected Ford’s dividend to recover in 2022 at about half the distribution, but investors seem to support the move, which Barclays’ Johnson called “positive for some of his investor base.”

– CNBC Michael Bloom contributed to this report.


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