Why General Motors (GM) is Making Fresh Gains on Friday (Update 1)

Updated from 11:50 a.m. EDT to include GM spokesperson comments and competitors' share prices. 

NEW YORK (TheStreet) -- General Motors  (GM) was rallying during Friday trading on news the automaker could ship an increased number of vehicles made in South Korea to Australia. Shares were up 3.1% to $40.30, adding to its year-to-date gains of 39.8%.

Speaking with Reuters, a source familiar with the matter said GM will up production in South Korea and potentially scrap manufacturing in Australia, in line with its global restructuring plans.

A separate Reuters report alleges General Motors, under the Holden brand in Australia, could shutter its manufacturing plants as soon as 2016. Anonymous senior government sources, speaking with the Australian Broadcasting Corp, said a decision was set to be announced during the week but had been suspended until early 2014.

The Australian auto manufacturing industry has been struggling in recent years under rising costs, a strong dollar and weak exports. Australian Prime Minister Tony Abbott has called on Holden to be transparent with its intentions.

A General Motors spokesperson declined to comment. 

Fellow automakers Ford (F) and Tesla (TSLA) have moved up 0.09% and down 1.2%, respectively. 

TheStreet Ratings team rates General Motors Co as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate General Motors Co (GM) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 11.8%. Since the same quarter one year prior, revenues slightly increased by 3.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Compared to its closing price of one year ago, GM's share price has jumped by 48.44%, exceeding the performance of the broader market during that same time frame. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GM should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The debt-to-equity ratio is somewhat low, currently at 0.87, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.82 is somewhat weak and could be cause for future problems.
  • Net operating cash flow has increased to $3,860 million or 14.09% when compared to the same quarter last year. Despite an increase in cash flow, General Motors Co's cash flow growth rate is still lower than the industry average growth rate of 32.22%.
  • General Motors Co's earnings per share declined by 49.4% in the most recent quarter compared to the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past two years. However, we anticipate this trend to reverse over the coming year. During the past fiscal year, General Motors Co reported lower earnings of $2.93 a share vs. $4.62 a share in the prior year. This year, the market expects an improvement in earnings ($3.41 vs. $2.93).
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