General Motors ($GM) appears set to outperform expectations in the second quarter, while Ford Motor ($F) is projected to encounter challenges that may negatively impact its performance relative to consensus estimates, according to insights from RBC Capital Markets. In two recent notes emailed to clients, RBC's analyst Tom Narayan emphasized GM's potential for a stronger-than-anticipated quarter, reiterating an outperform rating with a price target of $58 for the stock. The consensus expectations for GM may be on the conservative side, especially when considering recent comments from the company's management.
Despite forecasts indicating a sequential decline in automotive earnings before interest and taxes (EBIT) margins from 9.1% in the prior quarter to 8.5%, GM has expressed optimism about achieving sequential EBIT growth. The general sentiment among analysts seems to align with a stable outcome for GM's upcoming results, slated for release on Tuesday. Data gathered from Motor Intelligence reveals that US sales for GM in the second quarter are expected to reach 692,000, representing a notable increase from 590,000 units sold in the first quarter.
Additionally, average transaction prices are anticipated to remain relatively flat to slightly increase when compared quarter-over-quarter. While there has been an uptick in fleet sales and sales of battery electric vehicles in the second quarter, which typically dilute margins, RBC does not foresee significant margin pressures arising from these factors.
This is mainly due to their limited contribution to GM's overall sales. As the industry shifts, GM's report is keenly awaited for further insights. On the other hand, Ford's situation appears more precarious. The Visible Alpha forecast indicates that Ford's second-quarter automotive margin is expected to hit 8.3%, reflecting an improvement from the first quarter's margin of 6.5%.
However, the sales figures reported by Motor Intelligence show only a 5% quarter-over-quarter increase in units sold, which Narayan suggests does not imply substantial enhancement in Ford’s market conditions. The average transaction prices tracked by RBC Elements suggest stable pricing between the first and second quarters, indicating potential headwinds for inventory turnover and profit margins.
Ford’s quarterly results are anticipated on Wednesday, further revealing the contours of its financial health. Looking forward, both General Motors and Ford face a challenging 2024 outlook, with analysts predicting a substantial downturn in performance during the latter half of the year. RBC has lowered its EBIT target for GM to $13.95 billion from a previous estimate of $14.47 billion.
Moreover, the EBIT forecast for Ford has also been adjusted downwards, set at $11.06 billion as opposed to an earlier target of $11.14 billion. RBC maintains a sector perform rating for Ford with a price target of $13 per share. These shifts in expectations underscore the evolving landscape of the automotive industry as both giants navigate through complex market dynamics..