The world's largest car manufacturers have been hit hard by the global coronavirus pandemic. The COVID-19 outbreak destroyed demand and forced them to close their factories this spring. The unexpected shock forced many manufacturers to cut costs, suspend their dividends, and revise profit guidelines.
However, the last revenue cycle showed that some car manufacturers are recovering more quickly from this downturn than others as the economy reopens. and revives the business activity. In this post, we'll focus on the two largest US automakers, General Motors (NYSE 🙂 and Ford (NYSE :), to understand which stock is a better buy after their latest earnings reports.
General Motors: Turnaround On Track
The Detroit automaker whose net income increased 74% from the same quarter in 2019. Adjusted earnings per share of the company was $ 2.83 in the quarter, better than an analyst consensus estimate of $ 1.45 a share. That was more than $ 1.72 a year ago and better than the second quarter, when GM posted its first loss in more than a decade.
The turnaround was strong enough for Chief Executive Officer Mary Barra to announce that the company has plans. to resume its dividend in mid-2021 after suspension of payments in April.
Helping GM are the company's redesigned large pickups, along with Barra's restructuring plan. The automaker's business in China also showed signs of recovery after a two-year decline. GM sales in China, the world's largest auto market, were up 12% in the past quarter, recovering from a steady decline in recent years.
"We are seeing very high demand for our full-size pickups at all levels, but especially those high-end pickups," Barra said in an interview on Bloomberg Television.
"We're seeing strong and growing demand, and right now we're building every truck we can make."
Due to this rising demand, GM stocks are outperforming peers. From its low in March, the stock has more than doubled and is currently trading at $ 38.96 as of Monday's end.
The rally in GM stock accelerated last month after the automaker unveiled its new GMC Hummer EV, along with the announcement of more than $ 2 billion in new investment to support electric vehicles.
These steps, combined with strong sales, show that the company is in a better position to take on the industry's biggest disruptor, Tesla (NASDAQ :), which has a wide lead in the market. for electric cars.
Ford: Big Earnings Surprise
Like GM, Ford sales have also exceeded analyst expectations. Rising demand for pickups helped Ford deliver $ 0.65 per share of adjusted earnings, well above its consensus forecast of $ 0.19 cents.
Rising earnings in North America allowed the company to adjust its forecast for the full year higher – from loss to profit.
Before the pandemic-induced recession began, Ford tried to reinvent itself. After many years of rising sales, aided by the robust global economy and strong consumer interests, the automaker faced strong headwinds as demand for sedans declined. Last year, net income fell by more than half.
To meet these challenges, Ford decided to leave the smaller auto arena and instead focus on SUVs and trucks in the US These efforts, along with a management review that brought Industry veteran Jim Farley at the helm appears to be helping Ford cope with the current pandemic environment, while reviving its crushed stocks.
After falling to $ 3.96 during the market crash in March, Ford stock is now trading at $ 8.20 at yesterday's close. However,
Wall Street analysts have not yet warmed to this troubled Detroit automaker. Of the total of 24 analysts covering Ford stock, only four have a buy rating on the stock, with a 12-month average price target of $ 8.79.
Bottom Line
Overall, GM has generally outperformed Ford in recent years, posting stronger profit margins in North America, where big pickup trucks and SUVs provide most of the global profit for both companies. GM has also benefited from exiting unprofitable overseas markets – still a troubled territory for Ford – while remaining profitable in China despite price pressure and a drop in sales.
Ford's latest profit doesn't make the stock buy one, in our opinion. The automaker's turnaround is on shaky ground, especially when it still has to solve many of its long-standing challenges, including higher warranty costs and rapidly declining sedan sales.
For these reasons, we continue to prefer GM over Ford. for investors interested in taking a exposure to traditional auto stocks.
