General Motors Company GM has revealed its 2017 guidance and raised its share repurchase authorization. The company expects 2017 adjusted earnings per share in the range of $6.00 to $6.50, up from the 2016 estimate of $5.50 to $6.00. The automaker also expects adjusted EBIT and adjusted EBIT margin to remain stable or improve, based on higher revenues. The automaker is also expected to generate around $6 billion of adjusted automotive free cash flow.
The upbeat outlook is based on strong performance in North America and China along with growth in the GM Financial business. The company also expects to benefit from cost efficiencies, improvement in South America and benefits of a strong product launch strategy.
General Motors also announced an additional share repurchase authorization based on the strong outlook. The board of directors at General Motors approved a hike in the existing share repurchase authorization by $5 billion to $14 billion.
General Motors’ initial share repurchase authorization of $5 billion was completed in third-quarter 2016. In Jan 2016, the company increased its share repurchase authorization by $4 billion to $9 billion. In the first nine months of 2016, General Motors repurchased shares worth $1.5 billion and paid dividends of $1.8 billion. General Motors expects to complete the $9 billion repurchase authorization by the end of 2017.
General Motors also increased its cost efficiency target by $1 billion to $6.5 billion, which will be achieved through 2018. The automaker has already achieved $4 billion in cost efficiency til 2016. The company has increased the cost efficiency target based on expectation of additional savings in material, logistics, manufacturing and general administrative costs.
General Motors also expects that the proportion of its global volume from new or refreshed vehicles will improve 38% during 2017–2020, higher than 26% recorded during the 2011–2016 period. Crossovers, trucks and SUVs, as a proportion of the automakers global volume during 2017-2020, are expected to rise 52% from 38% recorded in the past six years.
General Motors further reaffirmed its transparent capital allocation strategy. The automaker will be reinvesting in the business so as to achieve 20% or greater return on invested capital. The company will also maintain an investment-grade balance sheet with a cash balance of $20 billion. General Motors will also return the available free cash flow to shareholders.
General Motors has outperformed the Zacks categorized Auto Manufacturers-Domestic industry over the last one-year period. Share price of the company increased 23.2% over this period while the industry saw a 17.7% rise. The company benefitted from the strong results last quarter and business initiatives including the expansion of Maven and investment in facilities. Expectations of higher earnings in 2016 and 2017 also buoy optimism.
Zacks Rank & Key Picks
General Motors currently carries a Zacks Rank #4 (Sell).
Better-ranked companies in the auto space include Oshkosh Corporation OSK, Fox Factory Holding Corp FOXF and GKN plc GKNLY. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fox Factory has an expected earnings growth rate of around 16.6% for the current year. Oshkosh has a long-term growth rate of 8.4% while the same for GKN is pegged at 6.3%.
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