Why Wall Street isn't buying into GM's guidance raise
Mary Barra, chief executive officer of General Motors Co., during the South by Southwest (SXSW) festival in Austin, Texas, US, on Tuesday, March 14, 2023.
DETROIT – When a company beats Wall Street's earnings expectations and raises guidance amid recessionary fears and other economic concerns, you would expect the stock to rally.
Look no further to defy that logic than shares of General Motors , which are down nearly 6% this week since the company reported its first-quarter results and raised 2023 guidance Tuesday morning.
Shares closed Wednesday at $32.22 – marking the stock's lowest closing price since October and 26% off its 52-week high of $43.63 a share. The stock is now down 4.2% for the year.
So, what's sending the stock lower even as sales are expected to rise and the automaker largely puts years-long supply chain problems in its rearview?
Though GM's year is off to a good start, the consensus is that the rest of the year is going to prove far more challenging. Wall Street analysts say eroding pricing power, labor concerns and challenges in producing electric vehicles, will make it harder for GM to perform at the profitability levels it has been.
The automaker is painting a rosy picture against the backdrop of a broad normalization in the automotive industry. Record-high vehicle profits and prices, achieved during historically low vehicle inventory levels and resilient consumer demand, are starting to normalize.
"GM continues to do the right things, but we believe cycle normalization and challenges in EV ramp make for a tough investment thesis," Barclays analyst Dan Levy said in an investor note Wednesday, reaffirming an equal-weight rating but lowering the firm's price target for the stock by $3 to $42 a share.
GM CFO Paul Jacobson said Tuesday that the company expects flat pricing compared to last year. He said consumers paid an average of $50,263 per vehicle in the U.S. during the quarter, off 1% from a year earlier.
Higher prices are bad news for consumers but great for automakers, as noted by BofA Securities analyst John Murphy in an investor note Wednesday titled, "You hate it, we like it: execution and price drive beat and raise."
Source: CNBC
