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Analyst Blog

On Mar 2, 2014, we issued an updated research report on General Motors Company (GM - Analyst Report). General Motors benefits from its focus on the emerging markets, investments in North America and efforts to boost financial flexibility. We also appreciate its focus on the fuel cell technology.

However, we are concerned about its significant exposure to Europe, rising debt and declining free cash flow. Additionally, high product recalls and the ongoing investigation regarding delay in product recalls are reasons for concern.

General Motors recorded adjusted earnings of $1.1 billion or 67 cents per share in the fourth quarter of 2013, lagging the Zacks Consensus Estimate of 88 cents per share. In comparison, the company generated earnings of $0.8 billion or 48 cents per share in the fourth quarter of 2012.

Revenues in the quarter grew 3.1% year over year to $40.5 billion, lagging the Zacks Consensus Estimate of $40.8 billion. In 2013, General Motors was the leading automaker with a 16.9% market share in the U.S. GM is focusing on the emerging markets, particularly Brazil, China and India, to recoup its global sales by increasing capacity investment to meet the growing demand.

However, General Motors has been facing heat for delaying the recall of 1.6 million vehicles with defective ignition switches which can lead to shutting down of the engine and prevent deployment of front air bags in the event of a crash.

GM’s total debt (Automotive and Financial) increased significantly to $36.2 billion as of Dec 31, 2013 from $16.1 billion as of Dec 31, 2012. Consequently, debt-to-capitalization ratio increased to 45.9% as of Dec 31, 2013 from 30.7% at the end of 2012.

General Motors reported positive earnings surprises in 3 of the trailing 4 quarters with an average beat of 2.95%. The Zacks Consensus Estimate for the company’s 2014 earnings per share stands at $3.77, up 18.52% from 2013.

General Motors currently holds a Zacks Rank #4 (Sell). Some better-ranked automobile stocks worth considering are Tata Motors Limited (TTM - Snapshot Report), Daimler AG (DDAIF) and Tesla Motors, Inc. (TSLA - Analyst Report). Tata Motors and Dailmer sport a Zacks Rank #1 (Strong Buy), while Telsa carries a Zacks Rank #2 (Buy).

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