GM Sharply Lower After Profit Warning

General Motors Co. (GM) has sold off nearly 6% in Wednesday’s session after beating Q4 2020 top and bottom-line estimates while lowering 2021 earnings-per-share guidance. The automaker earned $1.93 per-share in the quarter, $0.32 better than estimates, while revenue grew 21.7% to $37.5 billion, beating consensus by more than $1 billion. 2021 EPS is now expected to range between $4.25 and $5.25, about 20% below previous guidance, due to a global semiconductor shortage.

Quantum Leap Into Electric Vehicles

The company warned about the chip shortage on Feb. 3 but the bearish guidance still caught market watchers off-guard, contributing to an aggressive ‘sell-the-news’ reaction. Rally momentum had kept GM trading near all-time highs in the last three weeks but bears could now reload aggressive short sales. However, downside in general has gotten harder to predict, with hedge funds under the gun and piles of stimulus money sloshing around the equity markets.

General Motors has benefited from that capital flood, which triggered a quantum leap into the electric vehicle era on the heels of Tesla Inc.’s (TSLA) historic uptrend. GM spent years and billions of dollars defending its gas guzzlers but has now gotten religion and is investing $27 billion in EV products through 2025, when it expects to have 30 fully electric vehicles in production. In turn, the automaker could capture the highest EV market share in North America.

Wall Street and Technical Outlook

Wall Street consensus has risen to a ‘Buy’ rating in the last year, based upon 15 ‘Buy’, 1 ‘Overweight’, and 2 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $48 to a Street-high $80 while the stock opened Wednesday’s session about $5 below the median $60 target. The warning may not do too much technical damage, given this humble placement.

General Motors struggled to overcome resistance in the 40s for almost a decade, reversing in that price zone in 2011, 2014, and 2017. Slightly higher highs during those peaks generated a rising highs trendline that was mounted on heavy volume in January 2021. Breakout support could get tested several times this year. potentially offering low risk buying opportunities in the upper 40s and low 50s while a breakdown ends the uptrend that started at the March 2020 low.

For a look at this week’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.