General Motors Stays Neutral

On January 3, we maintained our Neutral recommendation on General Motors Company (GM - Analyst Report) despite its lower earnings in 2012 third quarter based on anticipated gain from the company’s major expansion plan across the globe and its recent move to improve its brand image.

Why Maintained?

GM posted a 9.7% fall in earnings to 93 cents per share (excluding special items) in the third quarter of 2012 from $1.03 in the corresponding quarter a year ago. However, earnings per share far exceeded the Zacks Consensus Estimate by 32 cents.

The decline in earnings was attributable to lower profits from North America and increased loss in Europe. Revenues in the quarter grew 2.5% to $37.6 billion, surpassing the Zacks Consensus Estimate of $36.3 billion.

Following the release of third quarter results, the Zacks Consensus Estimate for 2012 went up by a penny or a meager 0.3% to $3.26 per share. The Zacks Consensus Estimate for 2013 also raised a tad 1.0% to $3.91. With the Zacks Consensus Estimates for both 2012 and 2013 remaining almost flat, the company now has a Zacks #3 Rank (Hold).

GM expects to benefit from its continued focus on emerging markets, particularly in Asia. The leading global automotive company announced plans to expand its dealerships in Indonesia and Thailand. It also opened a plant in China through its joint venture SAIC-GM-Wuling and upped stake in its Indian joint venture with Shanghai Automotive Industry Corporation (SAIC).

Further, GM is very close to shedding its “Government Motors” tag as it announced plans to repurchase 200 million shares from the U.S. government for $5.5 billion. Post-sale, the stake of U.S. Treasury in the company will be reduced to 19% from 26.5%.

However, the ongoing financial crisis in Europe is expected to continue to mar the company’s results. Its European arm, Opel, revealed that it expects to report an operating loss of €1 billion ($1.3 billion) in 2012 due to fewer than anticipated car sales.

Other Stocks to Look For

Most of the top peers of GM are currently performing in the same line. They include Ford Motor Co. (F - Analyst Report) and Tesla Motors, Inc. (TSLA - Snapshot Report). Both of these companies carry a Zacks #3 Rank (Hold).