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General Motors (GM) Lifts Profit Projections, Stock Rallies

Zacks Equity Research
·4 min read

Shares of General Motors GM rose 5.1% yesterday as the U.S. auto giant raised its full-year 2021 EBIT forecast. It now envisions the pretax profit to total $14 billion, higher than the previous guided range of $11.5-13.5 billion. High demand for vehicles amid preference for personal mobility along with robust consumer spending is expected to aid General Motors’ results. Rising prices of new vehicles amid tight inventories due to global chip crunch will likely buoy profits.

While the revised profit forecasts have lifted investors’ confidence in the stock, the near-term headwinds surrounding the firm are far from over. General Motors’ CFO Paul Jacobson notified that the company continues to reel under the shortage of semiconductor supply and low production and is not likely to operate at a full run rate by the end of next year. It expects the chip crisis to continue at least till the first half of 2022 and cautioned that the vehicle production and inventories won't get back to normal until late 2022.

Jacobson also acknowledged the rising commodity costs that GM is grappling with. High commodity costs, including platinum group metals and steel prices, are likely to play a spoilsport. In fact, General Motors notified on its last earnings call that it expects second-half 2021 commodity costs to be $1.5-$2 billion higher than the first half of the year. Further, it anticipates commodity costs in the fourth quarter to increase from the third quarter. High product launch costs and R&D expenses related to electrification, battery technology and software solutions are anticipated to weigh on the firm’s cash flows. Amid such near-term hiccups, General Motors currently carries a Zacks Rank #3 (Hold).

If you wish to invest in the auto space, you can consider adding Tesla TSLA, Harley-Davidson HOG and Goodyear Tire GT to your portfolio, each of which sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Tesla: Tesla is riding on the rising deliveries of Models 3 and Y. With China being the biggest EV market, Tesla’s ambitious production plans in the country bode well. The company’s energy generation and storage revenues are also boosting earnings.

The electric vehicle king has an expected earnings growth rate of 167% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 6 cents over the last 30 days. Tesla beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing it once.

Harley Davidson: In sync with the long-term growth objectives to optimize product portfolio and expand customer base, Harley-Davidson is focusing on motorcycle models and technologies that better align with market trends. The firm's turnaround plan, dubbed as ‘Rewire’, and the five-year strategic plan ‘Hardwire’ boosts optimism.

The iconic motorcycle maker has an expected earnings growth rate of an astounding 36,100% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 2 cents over the last seven days. Harley-Davidson beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missing it once.

Goodyear: Goodyear’s acquisition of Cooper Tire, which closed in June, has strengthened the firm's leadership position in the global tire industry. Frequent rollouts of innovative products and services, electrification efforts and restructuring initiatives are also set to drive the firm’s prospects.

Goodyear has an expected earnings growth rate of 196.86% for the current year. The Zacks Consensus Estimate for its current-year earnings has been revised upward by 42 cents over the last 30 days. GT beat the Zacks Consensus Estimate for earnings in the last four quarters.


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HarleyDavidson, Inc. (HOG) : Free Stock Analysis Report
 
The Goodyear Tire & Rubber Company (GT) : Free Stock Analysis Report
 
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