General Motors Company (GM) Is Significantly Undervalued: Greenlight Capital

Greenlight Capital, a New-York based hedge fund founded by David Einhorn in 1996, is bullish on General Motors Company (NYSE:GM), which gained more than 17% last year. In its Q4 investor letter, the fund mentioned that GM – its biggest winner – had performed well during the last year. The investor believes that the Detroit automaker is “significantly undervalued” given its “continued impressive fundamental performance.” In this article, we are going to take a look at Greenlight Capital’s viewpoint on GM.

General Motors is a $60-billion market cap company that was able to gain a lot of attention from investors in 2017. The ‘old-school automaker’ is focusing on electric cars and autonomous-driving systems to take on the Silicon Valley disruptors.

In its letter, Greenlight Capital said that GM had “an excellent year” in 2017.

Auto sales held up; Used car prices did not collapse; GM gained market share; GM exited its structurally money-losing European division; GM paid a 4.4% dividend (based on its year-end 2016 share price); GM bought back a lot of stock (9% of its year-end 2016 market cap); GM exceeded consensus earnings expectations by more than 10% every quarter;  2017 earnings estimates rose from $5.76 at the beginning of the year to $6.30 at yearend; and GM presented a case that it is a leader in future automobile technologies (electric vehicles, autonomous driving, transportation as a service, fleet management and connectivity).

General Motors is expected to make big profits from its new self-driving business in the coming years as well as from the sale of its trucks and SUVs in the United States and China.

Moreover, Greenlight Capital believes that the automaker’s shares are inexpensive. Here are more comments from the fund:

GM spent the year under-promising and over-delivering. From what we can see, the outlook for 2018 should be more of the same. The shares remain inexpensive at 7x consensus 2018 earnings estimates that we expect the company to exceed by a wide margin. This undervaluation is more extreme considering GM’s investment in future automobile technologies.

General Motors Company (NYSE:GM), showroom, car, Cadillac

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General Motors Company (NYSE:GM) expects strong earnings in 2018. It forecasts its 2018 results to be largely in line with expected 2017 results, benefiting from continued strength in North America and China, improvement in South America, additional growth in its adjacent businesses including GM Financial, and continued cost efficiencies.

“GM had a very good 2017 as we continued to transform our company to be more focused, resilient and profitable. We are positioned for another strong year in 2018 and an even better one in 2019,” GM Chairman and CEO Mary Barra said in a statement.

GM shares are up 3.12% since the beginning of this year. Over the last 12 months, the stock has surged nearly 17%. Among 25 analysts covering General Motors, 10 have ‘BUY’ rating, 2 ‘SELL’, and 10 ‘HOLD’. The consensus average recommendation is ‘OVERWEIGHT’, according to FactSet.

Meanwhile, GM is held by 62 hedge funds tracked by Insider Monkey, including Skylands Capital, Beech Hill Partners, and Fisher Asset Management.