DETROIT (TheStreet) -- GM (GM) had what can be viewed as a disastrous day on Monday, It recalled 8.4 million vehicles, bringing the year's total to 29 million recalls. Details of a compensation plan also were announced, adding an estimated $300 million to GM costs.
But on Tuesday, GM announced surprisingly strong June sales results. Sales rose 1%, despite forecasts that they would show a decline in the mid-single digits. This occurred even as sales of the Cruze, GM's most popular car and second most popular vehicle after the Silverado, were halted on June 26 because of a potential air bag defect.
GM shares rose 2.8% to $37.33 on Tuesday.
The success of GM's redesigned full-sized SUVs "is driving up GM's average transaction price even as overall sales grow," said Kelley Blue Book analyst Karl Brauer, in a prepared statement. "The result is a GM at pre-recession health levels, recalls be damned."
Is GM now a Teflon company, loved by consumers despite what the news reports say? That seems hard to believe, given that not long ago the specter of "Government Motors," bailed out by the federal government, was a staple talking point for the Obama haters. But that was seemingly forgotten on Tuesday.
Perhaps this is simply a case in which a rising tide lifts all boats. Overall, 2014 GM sales are up 2.5% through June while industry sales were up 5% through May. But GM has some bigger winners. Year to date, Chevrolet's small cars -- Cruze, Spark, and Sonic -- gained a combined 11% to 218,027 sales. Buick sales rose 12.5% to 113,472 units.
It's hard to say exactly what impact GM CEO Mary Barra has had. She became the first woman to head a major automaker in January. Weeks later, GM's image seemed to start to collapse around her. She made several appearances before Congress, which excels at outrage. That affords any CEO no chance to do well or badly; CEOs typically just sit there and take it.
Perhaps the most noteworthy recent Barra story has been the controversy last week over whether Matt Lauer should have asked her whether it is possible to run a major automaker and be a good mom at the same time. She said yes, it is possible.
If that is the biggest recent story, perhaps it offers a demonstration that consumers don't care much about recalls. After all, recalls can be taken as a sign that a company is being extra safe, and that Barra is a mom for safety. In a sense, she channels Mothers Against Drunk Driving.
As Barra said in a prepared statement on Monday, GM undertook "the most comprehensive safety review in the history of our company because nothing is more important than the safety of our customers." She added: "Our customers deserve more than we delivered in these vehicles. That has hardened my resolve to set a new industry standard for vehicle safety, quality and excellence."
In reports issued Tuesday morning, two auto analysts maintained buy ratings on GM. UBS analyst Colin Langan has a buy rating and a $49 price target. He estimated the cost of compensation at $300 million and the cost of recalls at $2.5 billion, including $1.2 billion in the second quarter. A JPMorgan analyst reiterated an overweight and a $36.30 price target and said the safety review "went out with a bang" on Monday, with the new recall announcements.
Written by Ted Reed in Charlotte, N.C.
TheStreet Ratings team rates GENERAL MOTORS CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate GENERAL MOTORS CO (GM) a BUY. This is driven by some important positives, 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, good cash flow from operations, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. 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:
- GM's revenue growth trails the industry average of 20.9%. Since the same quarter one year prior, revenues slightly increased by 1.4%. 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.
- Net operating cash flow has significantly increased by 141.26% to $1,976.00 million when compared to the same quarter last year. In addition, GENERAL MOTORS CO has also vastly surpassed the industry average cash flow growth rate of 40.62%.
- The debt-to-equity ratio is somewhat low, currently at 0.89, 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 0.81 is somewhat weak and could be cause for future problems.
- GENERAL MOTORS CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from 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 $2.35 versus $2.93 in the prior year. This year, the market expects an improvement in earnings ($3.13 versus $2.35).
- Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: GM Ratings Report