Even in the midst of a trade war, with a new aluminum tariff of 10 percent and a steel tariff of 25 percent, the Big 3 automakers earnings jump in the face of growing foreign competition. The three companies reported earning for their most recent quarter in the past two weeks. All the news wasn’t positive, but the future looks bright for traditional car companies.
General Motors Company was the last of the traditional Big Three auto manufacturers to report on this earnings cycle. Wednesday, before market open, the company upset Wall Street expectations, sending the stock up around 7 percent in morning trading.
According to CFO Dhivya Suryadevara, the upset is largely based on an increase in average pricing across the board as well as redesigns in two of its pickup series.
“Our discipline came through this quarter,” said Suryadevara.”We feel very confident about the pricing.”
The company reported a 25 percent increase in net operating profit, and directly cited Trump tax cuts as allowing for an additional $0.30 per share profit. Moreover, GM providing optimistic guidance, saying that that profits will land at the high end of the previously anticipated $5.80 to $6.20 per share.
Ford reported last week, and the auto manufacturer delivered similar numbers to that of GM, providing a quick bump to the share price. Revenue clocked in at $37.7 billion and operating profit of $0.29 per share, beating analyst expectations on the top and bottom line, and year over year revenue growth. The one miss in Ford’s report was a year over year drop in earnings per share from $0.39 to $0.29.
The largely positive report prompted an Upgrade from Goldman Sachs from a neutral rating to a buy, with a $12 price target, representing a 30 percent upside for the stock.
“While we still expect a downward earnings trajectory into 2019 (North America profit under-pressure), we believe next year will represent trough earnings and the combination of a refreshed product cadence globally as well as cost improvements from strategic initiatives will begin to take hold,” said Goldman Sachs’ automotive analyst David Tamberrino in a note to investors.
Additionally, Tamberrino says that, with GM center stage for Wall Street, any news of streamlining or downsizing from Ford would be seen with rose-colored lenses.
“With investor sentiment still skewed toward GM over Ford,” wrote Tamberrino. “We believe any incremental announcements (i.e. plant closures and business decisions around underperforming regions/product lines) would likely be viewed positively.”
The one relative loser among the Big 3 automakers is Fiat Chrysler Automobiles. The company reported Tuesday and has a profit drop of nearly 40 percent. While the disappointment was largely due to a one-time charge related to a United States diesel probe into their SUVs and pickups, the markets were unforgiving.
The lack of price action related to the negative news provides an opportunity for investors, however. With the slump after earnings, Fiat Chrysler is currently trading at $15.26, with a consensus 12-month price target of $24.60, and mostly a buy rating from Wall Street analysts. For investors willing to go against the grain, Fiat Chrysler’s lackluster report has given way to an excellent buying opportunity.