GM's first-quarter earnings surprised Wall Street but investors remain cautious

Published Wed, Apr 27 202211:46 AM EDTUpdated Wed, Apr 27 20228:41 PM EDT

DETROIT – Wall Street was impressed, even surprised, by General Motors easily beating first-quarter earnings expectations and maintaining its 2022 guidance amid a litany of issues. But the impressive beat and reaffirmed guidance weren't enough to outweigh fears of analysts and investors of a possible recession and macro-economic factors that are outside of the Detroit automaker's control. GM's stock gained modestly on Wednesday after the company's Tuesday results. Shares gained more than 3% at their highs of the session, and they closed 1.6% higher. The stock remains near its 52-week low of $37.60. "Any weakening in consumer demand could rapidly result in pricing pressure and create downside risk to estimates," Deutsche Bank analyst Emmanuel Rosner wrote Wednesday in an investor note. "Even if this doesn't happen imminently, we believe investors could stay on the sidelines while waiting for the pricing shoe to drop." Can this earnings power be maintained? Other analysts, such as Credit Suisse's Dan Levy and Morgan Stanley's Adam Jonas, made similar comments. "While the results exceeded expectations, and marked a much-needed positive data point for the stock, we believe the core investor question is whether this earnings power can be maintained amid rising inflationary pressures," Levy told investors in a note Tuesday. Jonas said while the stock "may look cheap, the market is implicitly running down-side scenarios related to factors outside their control." He said there's too much "macro risk, combined with idiosyncratic supply chain and execution risk to get excited about the stock. "While the downside may be somewhat limited for U.S. legacy (automakers), we believe investors will struggle to generate alpha owning them here," he wrote Wednesday in an investor note. Slightly higher targets GM's surprisingly strong performance did result in some analysts slightly raising their 2022 earnings and price targets for the automaker, but there were no major re-ratings. For example, Deutsche Bank's Rosner raised his price target $1 to $57 a share, while Citi's Itay Michaeli raised GM's target by $3 to $98 a share. Michaeli, in a note to investors Tuesday, said the stock should respond favorably to the results. He also reiterated that Citi doesn't believe the stock's current price multiple reflects GM's "long demonstrated resilience/strength" or its electric and autonomous vehicle opportunities. For the first quarter, GM reported an adjusted earnings per share of $2.09 and revenue of about $36 billion. The results compared to expectations of a $1.68 EPS and $37 billion in revenue, according to Refinitiv consensus estimates. GM maintained its pretax adjusted earnings forecast of between $13 billion and $15 billion for the year, while raising its net income expectations from between $9.4 billion and $10.8 billion to $9.6 billion and $11.2 billion. Many analysts had expected GM to lower its forecast for the year due to higher costs, supply chain and potentially lower production volumes. However, GM also reaffirmed plans to produce 25% to 30% more vehicles this year than last year. GM CEO and Chair Mary Barra attributed much of the company's current success to efforts taken to restructure operations in recent years and its extremely strong vehicle prices amid resilient consumer demand and low inventory levels. "We are seeing strong demand for our products and that pricing that we have seen is allowing us to really tackle some of the issues around inflation and some of the higher commodity costs, so that gave us the confidence that we can reaffirm our guidance," Barra said Wednesday during CNBC's "Squawk Box." – CNBC's Michael Bloom contributed to this report.

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GM CEO Mary Barra: We're seeing strong demand for our electric vehicles

Squawk Box

DETROIT – Wall Street was impressed, even surprised, by General Motors easily beating first-quarter earnings expectations and maintaining its 2022 guidance amid a litany of issues.

But the impressive beat and reaffirmed guidance weren't enough to outweigh fears of analysts and investors of a possible recession and macro-economic factors that are outside of the Detroit automaker's control.