General Motors Expected to Outperform Ford Motor Shares in 2024

Analyst Downgrades Ford Stock, Upgrades GM Stock

As auto-stock analysts update their views and ratings heading into 2024, the consensus call is that General Motors (GM) will outperform Ford Motor shares.

On Wednesday, BNP Paribas analyst James Picariello downgraded Ford stock to Hold from Buy. His price target is $12 a share, up about 10% from recent levels.

Ford’s Challenges

Higher labor costs, lower-than-average profitability for Ford EV products, and additional costs to refresh its lineup of gasoline-powered vehicles are three reasons why.

Ford has generated operating profit margins of about 5% over the past few years, according to FactSet. GM, on the other hand, has a higher operating profit margin of about 8%. Despite hopes that Ford would close this gap, Wall Street expects its margins to stay around 5% in the coming years.

Market Reaction

Following the downgrade, Ford stock was down 1.4% in early trading at $11 a share. In contrast, the S&P 500 was up 0.1%, and the Dow Jones Industrial Average was flat.

Analyst’s Preference for GM

Picariello prefers GM shares, rating them Buy. His price target for GM stock is $43, up about 40% from recent levels.

GM stock has a “cleaner setup with greater conservatism already embedded, and additional levers to pull,” wrote Picariello.

GM stock was up 0.1% in early trading.

For GM, Wall Street expects operating profit margins to decline to about 6% in the coming years. This conservatism is already considered in the stock price. Additionally, GM recently announced plans to cut billions in costs in 2024, which further reinforces Picariello’s positive outlook.

In summary, based on the analysis by BNP Paribas analyst James Picariello, General Motors is expected to outperform Ford Motor shares in 2024. GM has a more favorable setup and additional adjustments that can drive its growth, which contributed to Picariello’s positive rating and target price increase.

The Value of GM and Ford Stock

A closer look at the stock-price targets set for General Motors (GM) and Ford reveals interesting insights into their relative valuations. While both stocks have their merits, there are key differences to consider.

GM Valuations

Picariello, an industry expert, believes that GM stock is undervalued, setting a price target that values shares at just five times the estimated earnings per share for 2024. This suggests that GM stock has significant growth potential and could be a compelling investment opportunity.

Ford Valuations

In comparison, Picariello’s price target for Ford stock values the shares at approximately 6.7 times the estimated earnings. Historically, Ford stock has traded with a higher price-to-earnings (PE) ratio compared to GM shares.

Dividends and Earnings Normalization

One possible reason for Ford’s higher valuation is its higher dividend yield in comparison to GM shares. Additionally, when valuing stocks in the automotive industry, investors strive to normalize earnings. Picariello highlights that Ford has a profit margin gap compared to its peers. If Ford were to achieve an 8% operating profit margin similar to GM, it would result in higher profits. In such a scenario, Ford stock would be trading at around 4.5 times earnings, which is very close to the GM multiple.

Analyst Sentiment

Wall Street largely agrees with Picariello’s assessment. Approximately 65% of analysts covering GM stock rate it as a Buy, reflecting confidence in its future performance. This number has increased from around 52% three months ago. In comparison, about 46% of analysts covering Ford stock rate it as a Buy, lower than GM but still showing an improvement compared to three months ago.

Car Stocks Outlook

While analysts are becoming more positive about car stocks after a challenging year in 2023, the preference still lies with GM over Ford. GM stock has experienced a decline of about 14% over the past 12 months, while Ford shares have seen a larger drop of approximately 19%. Factors such as higher interest rates and slowing growth in electric vehicle sales have affected investor sentiment towards car makers in general.

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