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Auto Stock Roundup: Record U.S. & China Sales; GM, Ford Reveal Outlook

Zacks

The beginning of the New Year brought significant cheer to the auto sector, with record U.S. and China sales figures for 2016. General Motors Company GM and Ford Motor Co. F also revealed details of their 2017 outlook and capital deployment plans.

Meanwhile, Penske Automotive Group, Inc. PAG turned its focus to acquisitions and Tesla Motors, Inc. TSLA started lithium-ion battery cells production at its Gigafactory. Among other developments, Toyota Motor Corporation TM announced plans to invest $10 billion in the U.S. over the next five years.

Recap of the Week’s Most Important Stories

1. 2016 Sales Figures


U.S. auto sales hit a record 17.55 million vehicles in 2016, exceeding the prior year’s record of 17.47 million vehicles. Sales on a seasonally adjusted annualized rate (“SAAR”) basis surged to 18.43 million units in the month from 17.83 million units in Nov 2016.

Meanwhile, General Motors and its joint ventures in China reported a 7.1% year-over-year increase in sales for 2016, taking the figure to a record 3,870,587 vehicles (read more: General Motors Stock Up Post Record 2016 China Sales).

General Motors currently carries a Zacks Rank #3 (Hold).

Further, Ford and its joint ventures reported a 14% year-over-year rise in China sales to a record 1.27 million units in 2016, driven by strong demand for an expanded vehicle lineup (read more: Ford’s China Sales Rise in December on High SUV Demand).

Ford currently carries a Zacks Rank #4 (Sell).

2. Guidance and Capital Deployment Plans

General Motors 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 company is 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 a strong product launch strategy. The board of directors at General Motors approved a hike to the existing share repurchase authorization by $5 billion to $14 billion (read more: General Motors Reveals 2017 View, Bumps Up Buyback).

Ford reaffirmed its 2016 pre-tax profit guidance of around $10.2 billion, which points to a decline from the 2015 level of $10.8 billion. The company expects 2017 results to be strong, albeit slightly softer than 2016 due to higher investments in electrification, autonomy and mobility. However, cost efficiencies of over $3 billion are expected in 2017. Further, results are expected to improve in 2018 due to gains in the core business.

Concurrently, Ford announced a dividend of 15 cents per share for the first quarter of 2017 as well as a supplemental cash dividend of 5 cents per share. Ford plans to distribute around $2.8 billion to shareholders in 2017, subject to approval by the company's board (read more: Ford Affirms Guidance, Announces Supplemental Dividend).

3. Penske Automotive’s Acquisitions

Penske Automotive has signed a deal to acquire CarShop, the leading retailer of used vehicles in UK. The company expects CarShop to generate annual revenues of around $340 million along with earnings accretion of around 7 cents to 9 cents per share annually. The acquisition is expected to close in the first quarter of 2017, subject to certain conditions. Penske Automotive expects this acquisition to complement its existing core auto retail business.

The company also completed the acquisition of CarSense, a stand-alone specialty retailer of used vehicles in the U.S. The company expects this acquisition to generate annual revenues of around $350 million along with earnings accretion of around 7 cents to 9 cents per share. Penske Automotive expects this buyout to diversify its business and help expand its customer base. It will also help the company to capitalize on the highly fragmented used automotive retail segment.

Penske Automotive currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

4. Toyota’s Investment Plans

Toyota announced plans to invest $10 billion in the U.S. over the next five years. The investments will be utilized to fund the construction of the company’s new North American headquarters in Texas and to upgrade a few plants to meet the rise in demand for fuel efficient vehicles (read more: Toyota to Pour Billions into U.S. Over Next 5 Years).

Toyota currently has a Zacks Rank #3.

5. Tesla’s Gigafactory Update

Tesla has initiated lithium-ion battery cells production at its Gigafactory in Nevada in collaboration with Panasonic Corp. The cylindrical 2170 cells will be used in Tesla's Powerwall energy storage products. These cells have been jointly designed by Tesla and Panasonic. Tesla intends to start producing batteries for the Model 3 sedans later this year (read more: Tesla's Gigafactory Starts Battery Cell Production).

Tesla currently carries a Zacks Rank #3.

Performance

Auto stocks recorded mixed performance over the last week. General Motors posted the maximum gains among the stocks listed below over the last week as well as six months. Meanwhile, Ford lost the most during both periods.

Company

Last 1-Week Period

Last 6 Months

GM

+2.3%

+24.0%

F

-3.8%

-5.8%

TSLA

+1.2%

+2.3%

TM

-1.1%

+12.6%

HMC

-1.6%

+15.8%

HOG

-2.7%

+16.9%

AAP

+0.8%

+6.0%

AZO

-0.1%

-1.1%

Auto-Tires-Trucks Sector 5YR % Return

Auto-Tires-Trucks Sector 5YR % Return

What’s Next in the Auto Space?

Some automakers will report their Europe auto sales for December and full-year 2016 in the coming week.

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