The decline is due to a number of factors, the most significant of which is that the automaker’s increased guidance was not as strong as some analysts expected. While GM’s second-quarter adjusted pretax earnings were a record for the quarter, they also fell short of the company’s previously announced guidance for the first half of the year.
Credit Suisse analyst Dan Levy described it as a “reset on expectations,” while others described the guidance as lackluster or disappointing in light of the automaker’s results over the previous year. During an investor call Wednesday morning, GM CEO Mary Barra and CFO Paul Jacobson focused on both of these topics.
“GM reported 2Q21 results that were less robust than expected, and provided a weak updated 2021 outlook, primarily due to a larger expected impact from the semiconductor shortage,” wrote Deutsche Bank analyst Emmanuel Rosner in an investor note on Wednesday.
Rosner added a short-term buy call to GM in a note on Thursday. He believes the stock’s decline presents a “compelling opportunity” for investors ahead of the company’s Capital Markets Day in October.
GM also fell short of Refinitiv’s average adjusted second-quarter earnings estimate of $2.23 per share due to recall costs that some analysts had not factored into their projections. The earnings were dragged down by $1.3 billion in warranty recall costs, including $800 million for fire risks in 2017-2019 Chevrolet Bolt EVs.
The automaker raised its full-year adjusted guidance to between $11.5 billion and $13.5 billion, or $5.40 to $6.40 per share. This was an increase from $10 billion to $11 billion, or $4.50 to $5.25 per share, but it fell short of many analysts’ expectations of more than $7 per share.
Barra and Jacobson described the company’s new 2021 guidance as “cautious” several times.
“We want to maintain credibility around these ranges, so we want to take a little bit of a cautious tone,” Jacobson said on the earnings call. “And if we see an improvement in the environment, I believe we will respond accordingly.”
The automaker anticipates $3.5 billion to $4.5 billion in headwinds during the second half of the year, including commodity cost increases of $1.5 billion to $2.0 billion and lower earnings from its financial arm. GM also expects to produce 100,000 fewer vehicles in North America in the second half of the year than in the first.
Following Ford Motor Company’s announcement last week that its chip situation was improving, analysts expected GM and other automakers to follow suit. However, this is not always the case, as Ford was directly impacted by a chip supplier fire, which resulted in a 50 percent reduction in second-quarter production.
“The (second half) shortfall appears to be driven primarily by new volume headwinds related to semiconductor shortages,” Citi analyst Itay Michaeli wrote in an investor note on Wednesday.
GM shares fell as much as 9.8 percent in intraday trading on Wednesday before closing at $52.72, down 8.9 percent. It was the company’s worst daily loss by percentage since the coronavirus pandemic began in March 2020.
Investors, according to RBC Capital Markets analyst Joseph Spak, should “buy the sell-off believing that while there was noise around the quarter and (second half) guidance did get worse vs. 1.5 months ago, the reason for that revision was mostly related to supply chain induced volume impacts.”
“We believe the (second half) guidance could prove conservative,” he said in an investor note on Wednesday. “More importantly, little has changed in terms of thinking about 2022.”
GM stock has increased by 100% in the last year, including a 26.6 percent increase in 2021.
Deutsche Bank: “buy General Motors on pullback”
“We believe the run-up to GM’s [Capital Market Days] on October 6-7 could serve as a positive catalyst for the stock, prompting investors to refocus on the company’s strong positioning, product, technology, and strategy in Autos 2.0,” said Emmanuel Rosner of Deutsche Bank in a note Thursday.
The bank has added GM to its Catalyst Call Buy List for the short term. The stock has a buy rating and a price target of $68, which is about 29 percent higher than GM’s Wednesday closing price of $52.72.
On Wednesday, GM shares fell roughly 9% after the automaker missed Wall Street’s second-quarter earnings expectations. Warranty recall costs totaled approximately $1.3 billion for the company. GM also increased its full-year guidance, though it was lower than some analysts anticipated.
“While 2Q results and 2021 guidance came in soft, we believe 2Q was impacted by one-time warranty charges that will be reversed, and management set an easy bar for 2H assuming lower sequential volume as a result of chip shortage,” Rosner said.
GM is expected to share insights into the company’s electric vehicle business and possibly announce an acceleration in EV product rollout at the event, according to Deutsche Bank. The bank also anticipates updates on Cruise, the company’s majority-owned autonomous vehicle subsidiary.
In 2021, GM shares outperformed the broader market. This year, the stock is up more than 26 percent, compared to the S&P500′s 17 percent gain.