J.P. Morgan analysts Ryan Brinkman, Samik Chatterjee and David Karnovsky provide a preview of 4Q13 automaker earnings for General Motors Company (NYSE:GM), Tesla Motors Inc (NASDAQ:TSLA) and Ford Motor Company (NYSE:F).
We preview 4Q13 automaker earnings by raising estimates on General Motors Company (NYSE:GM) to in-line with the Street, raising estimates on Tesla Motors to above the Street, and maintaining estimates on Ford Motor Company (NYSE:F) at an above-consensus level. We are Neutral-rated on Tesla Motors Inc (NASDAQ:TSLA) on valuation, but reiterate our Overweight ratings on shares of both Detroit-based automakers. General Motors remains our top idea overall, predicated upon: valuation below historical range (3.5x NTM EBITDAP vs. 4-5x long-run average and Ford at 4.7x); expected material profit ramp associated with its full-size pickup truck and SUV roll-out; a reduced bar for 2014 earnings (set conservatively low, we think, by a new senior leadership team); recently improving capital allocation; and the cycling past of government ownership.
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We marketed in New York and Connecticut last week, hearing investor feedback on our bullish call on General Motors Company (NYSE:GM). We found that most hedge fund investors continue to share our bullish view, although are concerned with shareholder churn and the macro-sensitive nature of the name, and were keen to understand our view of downside risk and exposure to Argentina – if it is “another Venezuela”. We believe General Motors shares are well supported at their current level by their very low 3.5x multiple of forward EBITDAP (the lowest of any firm we cover), 8.9x multiple of forward EPS, and – now – strong 3.3% dividend yield. We believe any General Motors and Ford Motor Company (NYSE:F) losses in Argentina are likely to be significantly less than in Venezuela. While Argentina is a larger market, the situation in Venezuela has been made fairly unique by: a greater degree of currency decline; an SUV-focus which had led to past high profitability; and the phenomenon of “trapped cash”, exacerbating exposure. This latter point is the most important, and we know of no reason why an inordinate amount of cash would be stored in Argentina.
General Motors 4Q EPS to be in-line with consensus
Relative to the time of 3Q earnings, General Motors Company (NYSE:GM)’s global production appears to have tracked modestly stronger than expected in 4Q (+5% y/y vs. our prior forecast of +3%), based on the latest mid-January forecasts by IHS Automotive. The modestly stronger volumes were driven by much better than expected production in China (+11% y/y vs. +3% y/y prior), leading International Operations to a gain of +5% y/y vs. outlook for -1% y/y prior).
North American production also tracked modestly stronger, at +9% y/y vs. +7% prior, and South America slightly stronger (+1% y/y vs. flat prior), more than offsetting slightly softer production in Europe (-4% y/y vs. -3% prior). Flowing through the impact of these volume changes prompts us to tweak General Motors Company (NYSE:GM)’s 4Q13E EPS modestly higher, to $0.88 vs. $0.80 prior, and as compares to Bloomberg consensus of $0.88.
Ford Motor’s 4Q EPS above consensus
Relative to the time of 3Q earnings, Ford Motor Company (NYSE:F)’s 4Q global production tracked in-line in aggregate, comprised of materially stronger production in Europe (+6% y/y vs. expectation of flat prior), inline production in North America (+2% y/y, same as prior), offsetting slightly softer production in Asia Pacific & Africa (+23% y/y vs. +26% prior) and South America (-8% y/y vs. -5% prior). Ford should benefit from the stronger trend vs. expectation in Europe relative South America (lower ASPs) or Asia Pacific (where it in part operates through profit sharing joint-ventures), and we maintain our above consensus 4Q13 EPS of $0.30 vs. Bloomberg consensus of $0.28.
Tesla Motors’ 4Q EPS to be inline with updated management guidance
We raise Tesla Motors Inc (NASDAQ:TSLA)’s Model S production near-term and long-term after management updated at the North American International Auto Show in Detroit that it had delivered roughly 6,900 units in 4Q, vs. earlier guidance of nearly 6,000. While this likely in part reflects the draw down of in-transit inventory, it nevertheless also speaks to still-brisk demand, particularly in overseas markets. We raise our production and earnings estimates for most periods (and our price target), although expect higher operating costs to be a partial offset. We expect $0.24 of 4Q13 EPS (up from $0.13 prior and as compares to consensus of $0.18).