I Am Still Buying General Motors After Q2 Earnings

Analyst reiterates a Strong Buy on General Motors with a $104 price target, implying ~30% upside from $80. The bull case centers on the next-gen Silverado/Sierra cycle, higher full-size SUV supply, OnStar growth, lower EV losses, and continued share repurchases, supporting adjusted EPS toward a 2027 estimate of $14.88. Valuation is based on a 7x forward non-GAAP P/E applied to the $14.88 EPS.

Analysis

The real lever here is not the stated EPS bridge; it is mix. If GM can keep North American truck/SUV content tight while monetizing software/connected services, the equity starts to behave more like a cash-return industrial than a cyclical assembler, which is why the multiple can expand even without heroic unit growth. That is also the pressure point for competitors: Ford and Stellantis are more exposed if GM sustains higher share in the highest-margin full-size segment, while parts and tooling suppliers tied to that platform get a longer production runway.

The key risk is that the market will look through far-dated 2027 math and focus on whether current margins are already near peak. Any slip in incentive spend, inventory discipline, or labor/cost inflation would compress the multiple faster than buybacks can offset it, especially if the company is simultaneously funding EV losses and software investment. Near term, the next 1-2 earnings prints matter far more than the 2027 target; a miss on EBIT margin or free cash flow would likely invalidate the thesis before the market ever capitalizes the out-year EPS.

Contrarian take: this may be less of a ‘cheap stock’ than a late-cycle earnings harvest story with a decent balance sheet. The market may already be giving credit for the truck cycle, so the upside hinges on proving that recurring software revenue and lower EV drag are durable, not one-off. If the business cannot show sustained repurchase capacity after capex and working capital, the 7x framework can de-rate back to a mid-cycle multiple quickly.

Key Decisions for Investors

• Go long GM common with a 3-6 month horizon only if North American pricing and truck/SUV inventory remain tight; thesis fails if quarterly EBIT margin or automotive free cash flow decelerate sequentially.
• Prefer a GM/F pair trade: long GM, short F, sized modestly into the next earnings cycle. GM has the cleaner mix/margin path; the spread should work if truck share and repurchases continue to support GM while Ford’s EV and recall overhang remains visible.
• For options, consider GM 6-12 month call spreads rather than outright calls to reduce theta risk; target a move toward the low-90s on evidence of margin durability, not just analyst target revisions.
• Set a hard watch item on buyback cadence versus free cash flow. If repurchases slow materially for two consecutive quarters, treat the rerating thesis as impaired even if the stock looks optically cheap.