The company will invest $5.4 billion to update factories across North America

Board of Directors increases quarterly dividend by 20% to $0.36 per share

Improved operating margins help grow net income 656% to $945 million

Car and truck maker, General Motors Company (NYSE: GM), designs and manufactures cars, crossovers, sports utility vehicles and trucks for individual, commercial and fleet customers in over 120 countries. General Motors has 11 brands, most notably Chevrolet, Cadillac and GMC, and operates four segments: North America, Europe, International Operations and South America. Additionally, General Motors offers automotive financing solutions through its GM Financial subsidiary. In 2010, General Motors raised $23.1 billion in one of the largest IPOs, and has since grown revenue 15% from $135.59 billion to $155.93 billion in 2014.


Shares Up 8% Over Last 2 years, Up 3% since IPO in November 2010

As of 6/26/15, General Motors shares closed at $34.37, giving the company a market capitalization of $55.26 billion. Shares are trading towards the high end of the company’s 52-week range of $28.82 – $38.99 and are up 8% over the last two years despite share price volatility. Shares are in line with the company’s 50-day moving average of $35.49 and 200-day moving average of $35.68.

GM trades in line with peer valuation averages while shares offer a 4.2% dividend yield – higher than peers. GM’s debt-to-equity ratio is also balanced and significantly lower than American rivals Ford and Chrysler.

 

Company

Price

Yield

P/S

P/B

P/E

PEG (5 year)

D/E

General Motors (GM)

$35.16

4.2%

0.38

1.60

16.36

0.44

0.9

Toyota Motor (TM)

$135.40

3.0%

0.97

1.58

12.11

0.33

0.6

Ford Motor (F)

$15.50

4.0%

0.43

2.44

19.80

0.56

4.4

Honda Motor (HMC)

$32.59

2.3%

0.59

1.10

13.82

1.71

0.6

Fiat Chrysler Automobiles (FCAU)

$15.47

N/A

0.18

1.20

21.31

0.86

2.2

Goldman Sachs (GS) downgraded General Motors to a Neutral rating with a $40 share price target (14% upside) on slow growth in China while Morgan Stanley upgraded the company to an Equal-Weight rating with a $28 share price target (20% downside) on potential collaboration within the automotive industry. General Motors has an average consensus price target of $42.63 and high price target of $51, representing upside potential of 21% and 45%, respectively.

Announces $5 Billion Share Repurchase Program

On March 9, 2015, General Motors announced a $5 billion share buyback program to be completed by year-end 2016. Majority shareholders were asking for a share buyback program of $8 billion but responded positively to the announcement. Through April 21, 2015, the company repurchased 19.4 million shares as part of a plan to deliver at least 20% ROI (return on investment) while maintaining at least $20 billion in cash flow, down from earlier estimates of $25 billion. GM’s focus on cash will cover the company should there be another recession while still allowing product development and new vehicle introductions.

20% Increase in Quarterly Dividends, 4.2% Dividend Yield

General Motors paid a quarterly dividend of $0.36 per share on June 23, 2015, to shareholders of record June 10, 2015, for an annualized dividend of $1.44 per share and a dividend yield of 4.2%. This latest dividend was 20% higher than the previous quarterly dividend, and reflects GM’s intent to return cash to shareholders after suspending its dividend in June 2008 in the aftermath of the financial meltdown. GM resumed dividend payments in March 2014.

Management plans to return about $10 billion to shareholders, through share buybacks and dividends, by December 2016.

Strategic Partnerships to Introduce New Models in New Markets and Grow Sales

General Motors and China’s SAIC Motor Corporation will invest $16 billion in their Shanghai GM joint venture to develop new vehicles through 2020. Shanghai GM is focused on gaining market share in China through the introduction of hybrid and electric vehicles that reduce fuel consumption under the Chevy and Buick brands. Shanghai GM is expected to introduce 10 energy efficient vehicles over the next 5 years with 13 new engines and 9 new transmissions that focus on power efficiency and lower emissions in response to China’s worsening air pollution in big cities. GM also set sales records in China earlier this year.


General Motors and Japan’s Isuzu Motors will expand their partnership to develop 6-liter, 8 cylinder engines for Isuzu’s N- series medium-duty trucks. The two companies have had a partnership for over 40 years.

Through partnerships with Apple (AAPL) and Google (GOOG), General Motor vehicles will offer hands-free navigation and other mobile applications to prevent accidents related to the use of mobile devices while driving. All 2016 Chevy models will include Android Auto and Apple CarPlay that will include more voice and steering wheel control to activate applications.


Plans to Invest $5.4 billion To Upgrade Factories in North America

GM plans to make sizable investments to improve innovation and vehicle quality, increase operating efficiency and selectively expand production capacity to better compete against foreign auto companies.

GM plans to invest $1 billion to renovate its 710-acre Technology Center in Michigan to better attract engineers and designers and increase innovation through expanded hiring. The project will be completed by 2018. GM has earmarked $245 million to develop a new vehicle program at its Orion Assembly plant in Detroit. The expansion is expected to add 300 jobs.

The company plans to spend $439 million to improve efficiency and upgrade the paint shop at its 450,000 square foot Corvette production facility in Kentucky as the economy improves. Over the past 4 years, GM Motors has invested over $135 million in the Corvette plant.

The company plans a $1.2 billion upgrade to its Fort Wayne, Indiana, facility to double size and production capabilities of its Silverado pickup trucks that have seen an 8% increase in sales as oil prices have fallen.

The company is investing $174 million to upgrade its Fairfax plant in Kansas to produce the newly launched 2016 Chevy Malibu and Buick LaCrosse by year end 2015. Management expects to sell an additional 10,000 vehicles in the upcoming year.

Management Bullish About Sales Growth

In May 2015, General Motors recorded its highest monthly vehicle sales (293,097 vehicles) since August 2008 from increased truck and crossover sales despite higher gas prices.

From 2013 to 2014, global sales increased 2% to 9.9 million vehicles. For 2015, management expects global sales to grow by about 3% with better sales in North America and Europe as the company continues to diversify its vehicle offerings. About 27% of GM’s global sales are expected to come from new 2015 models. General Motors expects total vehicle production to be 10.8 million in 2015, 11.6 million in 2016 and 12.2 million in 2017.


Vehicle Recalls Plague GM Sales Leadership

As of June 22, 2015, the death toll from faulty ignition switches in older, small-sized GM cars rose to 117. The families of those killed were offered $1 million each with additional offers to persons injured in accidents caused by faulty switches. As of March 31, 2015, General Motors had paid $200 million to settle claims. In 2014, General Motors recalled 2.6 million cars due to a faulty ignition switch.


In May 2015, General Motors recalled 470,000 Chevrolet Malibus produced in 2011 and 2012 for faulty seat belts, and 53,000 Chevy Colorado and GMC Canyon midsize trucks from 2015 for improperly installed seats. The company also recalled 92,000 Chevy Malibus over problematic power sunroof controls for cars produced from 2013 to 2015. General Motors recalled 67,000 Cadillac ATS vehicles just a month ago for the same problem.

Earlier this year, General Motors recalled over 243,000 Pontiac Vibes produced from 2003 – 2007 in the U.S. and Canada because the compact hatchbacks had faulty airbags supplied by Japan’s Takata. The faulty airbags have resulted in 7 deaths and 100 injuries worldwide. The company also recalled 64,000 Chevy Volts for a software update that limits the amount of time a vehicle can remain idle to prevent toxic Carbon Monoxide buildup. GM also recalled over 81,000 Chevy Trax and Buick Encore models over potential loss of electric power steering in 2015 models.

Clearly, quality remains an issue with heavy litigation and settlement expenses. The good news, though, is that GM is aware of the problems, appears to be proactively fixing things, is responsive with recalls and plans multi-billion-dollar upgrades to prevent future problems.

Recent Litigation Favors General Motors

The 6th U.S. Circuit of Appeals in Cincinnati ruled that General Motors was not obligated to pay a $450 million agreement for medical benefits to union worker retirees since the company filed Chapter 11 bankruptcy in 2009. The details of the Chapter 11 bankruptcy overruled previous agreements established in 2007 between the United Auto Workers, General Motors and Delphi Automotive.

U.S. Bankruptcy Court in New York ruled that General Motors cannot be sued over faulty vehicles produced prior to the company’s Chapter 11 bankruptcy. This includes all deaths and crashes related to faulty ignition switches as bad assets were sold to Motors Liquidation. Judge Gerber noted that personal injury and economic loss cases can be brought against Motors Liquidation but not against the new General Motors.

Experienced Management Capably ExecutesTurnaround

Mary Barra was named Chief Executive Officer on January 15, 2014. Barra joined the company in 1980 and has held key positions in the company’s design, engineering and quality divisions. She’s a respected industry veteran who is dedicated to making GM a leader in the U.S. and abroad through bold investments.

Dan Ammann became President in January 2014, and is responsible for global operations, business development and product planning. Ammann joined the company in 2010 and managed the company’s initial public offering.

Chuck Stevens serves as Executive VP and Chief Financial Officer, overseeing all financial and accounting operations. Stevens previously held senior financial positions with GM in the U.S. and abroad. He joined the company in 1983.

Q1 2015 Delivers Impressive Margins and $945 million in Net Income

For the three months ended March 31, 2015, General Motors reported Net Sales and Revenue of $35.71 billion (down 5%), operating income of $753 million (up 241% on lower automotive cost of sales) and net income of $945 million (up 656%), or $0.56 per share.

Q1 2015 Automotive revenue fell 5% as GM Europe and GM South America posted losses of $239 million and $214 million, respectively. Revenue at GM Financial was down 3% to $214 million. For the seventh consecutive quarter, the company reported a year-over-year increase in operating margin for GM North America. General Motors faced a net loss from special items of $547 million.


As of March 31, 2014, General Motors had $15.78 billion in cash and cash equivalents, $75.75 billion in total non-current liabilities and $36.33 billion in total shareholders’ equity.

For the first time since August 2012, Fitch Ratings upgraded General Motors credit to a BBB- rating, the lowest level of investment grade for the long-term. Standard & Poor’s also upgraded General Motors to investment grade.

Summary

Mary Barra and her team at GM appear to be on the right path as the invest in quality, innovation and expansion, and improve GM’s global brand image. The company is also on track to ramp-up vehicle sales in the coming years, and deliver solid earnings and cash flow. Favorable judicial rulings have also limited the overhang of costly insurance payouts over past problems. While GM shares are up, the company still offers solid long-term growth potential and is expected to increase dividends going forward – once again, making GM a solid, core long-term holding for income and upside.

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