General Motors raised its profit guidance for the 2019 calendar year after a surprisingly successful 2018, but some analysts don’t share the automaker’s positive outlook.
This past week, GM said it expected to post adjusted earnings per share of $6.50 to $7.00 in 2019. It also raised the $5.80 outlook given for its EPS for 2018 to $6.20 in October of last year, but gave no exact figure for total annual earnings.
The positive forecast caused GM stock to jump. GM opened at $36.67 on Friday and rallied to close at $37.18.
GM’s newly adjusted guidance is higher than market forecasts. With auto sales expected to slow in both the United States and China, where the bulk of its sales come from, Wall Street thinks GM will have a tough time meeting its own self set expectations. That includes Morgan Stanley analyst Adam Jonas, who believes the stock price will level back out over time.
“Not only did GM not choose to manage expectations lower in a highly uncertain macro climate, but in a major break from the industry they went the other way and raised guidance,” Jonas wrote, adding that he expects “to see more skeptical investors weigh in and fade the bounce, making GM a challenging story for long-only investors so late in the cycle.”
Morgan Stanley also said the guidance was a surprise and they they still carried the “expectation of a potential significantly lowered guide,” for the Detroit-based automaker.
It’s not clear why GM raised its 2019 guidance, but Buckingham analyst Joseph Amaturo believes the stock will begin to fade as analysts start to examine the “underlying assumptions management used to derive their 2019 full year guidance.”
GM has been reaching for ways to boost its stock price in recent years, exiting money-losing markets like Europe and India, closing various plants across the globe, discontinuing slow-selling models and making general changes to prioritize profit over market share.
Recently, it has set about redirecting resources into the research and development of electric and autonomous vehicles to better set it up for the future.