General Motors Sells Off Despite Strong Quarter
General Motors Co. (GM) is trading lower by more than 2% in Wednesday’s pre-market despite beating Q2 2021 top and bottom line estimates by healthy margins. The automaker earned $1.97 per-share during the quarter, $0.12 better than expectations, while revenue rose 103.8% year-over-year to $34.2 billion, more than $4 billion higher than consensus. The company raised full year 2021 earnings-per-share (EPS) guidance from the $4.50 – $5.25 range to the $5.40 – $6.40 range.
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Production Hampered by Chip Shortages
Chip shortages continue to weigh on quarterly metrics and investor sentiment. The sell-the-news reaction comes just one day after General Motors announced the shutdown of three North American pickup truck plants due to shortages. These closures follow a hopeful June statement that outlined a series of steps to achieve higher production levels. Sadly, one of those initiatives focused on a Flint, Michigan pickup assembly that’s impacted by the latest shutdown.
Analyst Dan Niles at Wedbush Securities outlined the bull case on General Motors last month, posting an ‘Outperform’ rating while noting that “going forward GM continues to be a re-rating story as the Street treats the Detroit automaker no longer as a traditional auto company trading based on book value, but a broader disruptive technology play that can start to trade at multiples similar to the likes of Tesla and other pure-play electric vehicle companies.”
Wall Street and Technical Outlook
Wall Street consensus remains highly bullish, with a ‘Buy’ rating based upon 19 ‘Buy’, 1 ‘Overweight’, and 3 ‘Hold’ recommendations. Price targets currently range from a low of $64 to a Street-high $90 while the stock is set to open Wednesday’s session more than $7 below the low target. This dismal placement tells us that analysts have done a poor job estimating the impact of chronic chip shortages on 2021 share valuation.
General Motors broke out above the 2017 high in the 40s in January 2021, just ten months after posting an all-time low. The uptick carved a series of marginal new highs into June’s all-time high at 64.30, ahead of a pullback that reinforces resistance in the low 60s while generating more than seven weeks of testing at the 50-day moving average. Accumulation has now dropped to the lowest low since January but price action, so far at least, has held horizontal support at 54. That level marks a line-in-the-sand that bulls need to hold at all costs.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.