GM: Dismantling The Bears' Ammunition – Seeking Alpha

General Motors Co. (NYSE:GM) is out with a much-anticipated earnings report, and the stock is reacting positively on the back of the report’s contents. There are a few surprises in the report, but much of what we discussed last year when we covered the name is coming to fruition. We said in plain language that this company was a buy based on shareholder-friendly policies and expectations for future performance. We left off with a projected $40 share price, but our targets have been surpassed as the stock now trades at $46 per share. Have shares gone too far too fast? In this column, we will highlight a few issues where the bears may be correct, despite profit rising in nearly every segment. We will dismantle some of the bears’ key ammunition in this article. It is our belief that you should remain long the stock, but book SOME profit after the strong move forward.

Volatility in revenue

Let us turn to the results. Here is what surprised us the most. The company planned reduced production in North America and this weighed on the top line, but the results versus the expectations were impressive:

Figure 1. GM Third Quarter Revenues Over The Last Three Years.

Source: SEC Filings

As you can see, revenues are all over the place. They have been volatile. In the present quarter, however, the company actually missed terribly on the top line. However, GM delivered a bottom line beat. GM trounced revenue estimates by a solid $950 million versus consensus. That is astounding, despite being down 13.6% year-over-year. When the bears use volatility in revenues as an excuse to sell or short the stock, simply point to the facts. The decline was planned, and the company crushed estimates. Profit too was a surprise.

Declining earnings

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