General Motors Trading Higher Despite Horrific Quarter

General Motors Co. (GM) is trading higher ahead of Wednesday’s U.S. opening bell after posting a loss of $0.50 per-share, beating estimates by an impressive $1.26. Revenues matched expectations at $16.8 billion, which marked a stomach-churning 53.4% year-over-year decline.  U.S. sales fell 34% compared to the same quarter in 2019 but improved sequentially between April and June, rising from a 35% to 20% decline at quarter’s end.

General Motors Cyclical Downturn

Traditional auto manufacturers were under pressure prior to the COVID-19 pandemic, with slumping comparative sales raising fears of a cyclical downturn. The outbreak has confirmed those suspicions, with most automakers reporting steep declines. Tesla Inc. (TSLA) has been a notable exception in this equation, but the EV upstart could face similar headwinds when mass production ramps up in coming years.

Chief Financial Officer Dhivya Suryadevara pointed out strong demand for trucks in a post-release interview, noting tight inventories in this successful product line. He stated the automaker should be able to repay some debt in the second half of the year, lowering anxiety about liquidity that’s taken a hit in the crisis. The CFO also pointed out the sequential improvement but wrapped up his comments by warning the ‘situation with COVID-19 is very fluid”.

Wall Street And Technical Outlook

Wall Street consensus rates the stock as a ‘Moderate Buy’, based upon 8 ‘Buy’, 3 ‘Hold’, and 1 ‘Sell’ recommendations. Price targets currently range from a low of $15 to a street-high $39 while the stock will open this morning’s session about $3 below the median $30 target. Upside appears limited despite the ‘buy-the-news’ reaction because short covering is probably driving this uptick, rather than investors coming off the sidelines in reaction to a more bullish outlook.

General Motors has underperformed broad benchmarks since posting an all-time high in the 40s in October 2017, caught in a decline that broke 2015 support in the first quarter downdraft. The stock remounted that level in May and stalled out, entering a testing process that’s still in progress, despite this morning’s uptick. It will now take about 5 upside points to confirm support and set the stage for another rally wave.  That seems unlikely without much stronger quarterly revenues.