General Motors turn bullish as Q3 results beat estimates

In spite of reporting 104% y-o-y increase in the net income, concerns about overheating of automotive sector kept the investors away from the stock of General Motors Company (NYSE: GM). The analysts’ also attributed the slowdown in sales growth for the lacklustre response of the market. However, considering the below mentioned details, we believe that the stock will remain bullish for the rest of the year.

The Detroit-based automaker’s fiscal 2016 third-quarter revenue of $42.83 billion was higher than the $38.84 billion reported in the similar period last year. The quarterly revenue also exceeded the Zack’s revenue estimates of $40.09 billion.

For the quarter ended September 2016, the net income more than doubled to $2.77 billion, from $1.36 billion in the third-quarter last year. Correspondingly, the Q3 2016 GAAP earnings of $1.76 per share were also higher than the $0.84 per share reported in the Q3 2015.

General Motors

On an adjusted basis, the third-quarter earnings increased to $1.72 per share, from $1.50 per share in the corresponding quarter of 2015, and surpassed the Wall Street analysts’ earnings estimate of $1.45 per share.

During the third-quarter, General Motors reported a 3.8% y-o-y increase in the global vehicle sales to 2.4 million. In particular, the sales of Cadillac rose 79% in China, mainly due to an increase in the demand for XT5.

In the US, the General Motors sold 42,441 units of Chevrolet Malibu, up 16% compared to the similar quarter last year. It is the best recorded sales since 1981. The market share of GM increased 0.4% in the US, compared to previous years. Likewise, the Average Transaction price (ATP) increased to $35,700, up $5,000 compared to last year.

Based on the strong results, the company reaffirmed its fiscal 2016 earnings per share guidance range of $5.50 to $6.00. General Motors also stated that it expects the earnings to be in the higher end of the guidance range. For the first-time, the stock appears to have broken the resistance level of 32. The high seventies reading of the stochastic oscillator confirms the bullishness in the stock. Thus, it is better to stay long unless the stock closes below the 32 level again.

A trade can be opened based on the above analysis by purchasing a one touch call option. The target price for the call option should not exceed the level of 36 where the stock may face resistance as revealed by the historic price chart. The binary trader can choose any day in the last week of December as the expiry date for the call option.

---