Tesla Reports Earnings Today. It’s a Prelude to GM and Ford Reports

Read The Full Article On: Barron’s

Electric-vehicle behemoth Tesla reports earnings today, after the market closes. But there are other auto makers for investors to pay attention to.

Ford Motor (ticker: F) and General Motors(GM) report earnings in coming weeks and investors should note that Wall Street is warming up to both those stocks. 

Automotive news has been dominated by Tesla (TSLA) this year, for good reason. Tesla is now the world’s most valuable auto maker. Shares are up more than 400% year to date and more than 730% over the past year. The gains have been driven by rising deliveries and profits as well as a belief that electric vehicles are the future of personal transportation. 

But General Motors stock is up about 27% since just before the company reported second-quarter numbers on July 29. That is better than the 9% and 8% respective moves of the Dow Jones Industrial Average and S&P 500 over the same span. Tesla stock is up about 43%.

One reason for the gains is that over the past few months analysts have started to value GM stock on a sum-of-the-parts, or SOTP, basis, looking at separate divisions within the company to derive a fair price. 

potential deal with alternative-fuel trucking pioneer Nikola (NKLA) is a big reason for the new valuation thinking. GM and Nikola announced a deal in September in which GM is to take an 11% stake in the company for supplying Nikola with EV batteries and fuel-cell components. The agreement didn’t close at the end of September as expected, and the two sides are still negotiating. 

GM as a credible EV supplier is a new idea. The company also has investments in autonomous-drivingtechnology to go with its base car and truck business. 

When earnings are reported on Nov. 5 Wall Street is looking for $1.36 a share from $35.1 billion in sales. “We continue to like the GM setup into [the third quarter],” Citigroup analyst Itay Michaeli wrote in a Tuesday research report. Truck profitability and a faster-than-expected U.S. auto recovery are reasons for his increased bullishness. Michaeli took his price target to $57 from $54 a share.

What’s more, he sees even bigger gains down the road. “We have gained conviction in our [more than] $100 [long-term] upside potential case and believe that if GM were to take a number of specific actions, this value unlock could materialize rather quickly.” He wants to see GM separate assets—looking at the firm on that SOTP basis.

Michaeli calls GM his top pick. More than 80% of analysts covering the stock rate shares Buy. The average Buy-rating ratio for stocks in the Dow is about 58%. Ford, on the other hand, isn’t as popular. About one-quarter of analysts covering the stock rate shares Buy. 

The weaker analyst sentiment mirrors the performance of Ford’s stock. Shares are up about 14% since second-quarter numbers beat analyst expectations, lagging behind GM and Tesla shares over the same span. 

Ford margins trail behind peers and the company is looking to turn operations around. Most analysts appear to be taking a wait-and-see approach. But some are warming to the shares. Benchmark analyst Mike Ward recently upgraded the stock to Buy. He thinks better-than-expected third-quarter numbers can propel the stock higher into 2021. His price target is $10 a share.

Deutsche Bank analyst Emmanuel Rosner has a Hold on Ford shares with a $9 price target, but he is bullish about the third quarter, too. He put a short-term “catalyst buy” recommendation on Ford stock in October, believing the U.S. auto recovery is proceeding faster than expected. 

U.S. light-vehicle sales have averaged about 17 million units annually for the past few years leading into 2020. Sales dipped to an annualized rate of 8.6 million units in April, but rebounded to 16.3 million units in September. 

A faster recovery is good for all auto makers, including Ford, GM and Tesla. For Ford, Wall Street is looking for 18 cents in per-share earnings from $35.4 billion in sales when numbers are reported on Oct. 28

If Ford and GM can produce strong third-quarter numbers perhaps their stocks can outperform Tesla—at least for a couple of months.

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