The Ratings Game: GM stock soars as investors look past ‘messy’ outlook

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General Motors Co.’s massive earnings beat on Tuesday boosted shares to their best in nearly six weeks even as the car maker cut its outlook for the year.

GM GM, +4.98%  stock rose nearly 5%, its largest one-day jump in more than four months, and was on track for its highest close since Sept. 13.

GM reported third-quarter adjusted earnings of $1.72 a share on sales of $35.47 billion. Analysts surveyed by FactSet had expected an adjusted EPS of $1.38 on revenue of $34.95 billion for the quarter.

The 2019 guidance was revised down, with GM expecting adjusted EPS between $4.50 and $4.80 for the year, but guidance “largely reiterated when excluding the strike impact,” analysts at ISI Evercore said.

They called the third-quarter results “messy” overall, and analysts at Deutsche Bank called GM’s 2019 outlook “weak and messy.”

GM workers in several North American factories went on strike last month. The walkout concluded on Friday after workers voted for a deal that included better wages, a shortened path to permanent status for temp workers, and bonuses.

The strike will cause a “relatively small” hit of up to half a billion dollars on GM’s ongoing cost savings program, leading to hopes the company’s “strong 2020 earnings and free cash flow outlooks remain largely on track,” the analysts at Deutsche Bank said in their note.

The company’s automobile sales came in above expectations thanks to GM North America, and losses from GM’s self-driving unit, Cruise, were smaller than forecast, Deutsche Bank said.

Investors are likely to “rotate back more aggressively to the stock,” the analysts said.

GM sales rose 6.3% and the company’s market share increased 6.1% in the third quarter, marking the company’s first gains in both areas all year, according to Edmunds. Its average transaction price for new vehicles also rose, up 2.8% in the quarter year-on-year.

Jeremy Acevedo, an analyst with Edmunds, called the increases “encouraging” as they came after two straight quarters of falling sales and market share.

“Despite the strike, GM had a lot working to the company’s advantage in the third quarter. The company is finally reaping the benefits of shedding many of the cars from its lineup” and getting the production of its Silverado pickup truck fully in line, he said.

Given the fierce competition among SUVs and pickup trucks, which account for 90% of GM sales, the company is “under a lot of pressure to make sure its vehicles stand out,” Acevedo said.

GM shares have gained 15% this year, on pace for their best year since 2017, compared with gains of 21% for the S&P 500 index SPX, +0.18%  and 16% for the Dow Jones Industrial Average. DJIA, +0.07%  

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