General Motors (GM +2.43%) recently reported its fourth-quarter earnings, missing revenue expectations. But that's the extent of the bad news, and the stock rallied after the company's results were announced.
Not only did GM beat expectations for bottom-line profitability, but management also provided excellent guidance, increased capital returns to shareholders, and offered a very positive outlook for the next few years. Here's a rundown of the automaker's results and why I think the stock could go much higher in the future.
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General Motors fourth quarter
As mentioned, on the headline numbers, GM produced mixed results, missing on revenue but beating on earnings. But looking beyond the headlines, it's quite clear that the business is doing well. And on the topic of revenue, it's worth noting that the federal EV credits expired at the end of the third quarter, so this is the first reported period in which the EV market didn't benefit from government support.
NYSE: GM
Key Data Points
For one thing, not only did GM beat analyst expectations for earnings, but adjusted EPS of $10.60 was above the high end of GM's own guidance range. And after factoring in the effects of one-time charges related to a shift in the company's EV strategy, EBIT and automotive free cash flow came in better than the company's guidance suggested.
Management also announced a 20% increase in the quarterly dividend and a new $6 billion share repurchase authorization. The latter has been the largest component of GM's capital return in recent years, and investors seem happy that the company is continuing to be aggressive. After all, the company has reduced its outstanding share count by 38% since it began repurchasing in 2022, and the new $6 billion buyback is about 8% of its outstanding shares at the current price.
A very bullish outlook
Perhaps the biggest reason the stock reacted positively to earnings is management's outlook. The initial 2026 guidance calls for earnings of $11 to $13 per share for the full year, which at the midpoint would represent 13% growth over 2025's already strong results.
In a CNBC interview following the earnings release, CEO Mary Barra said that battery technology improvements will help the company achieve profitability with the company's electric vehicles "quicker than many people think," and that the company will continue to invest in EVs, but at a lower level of capex than previously. GM's EV sales increased 48% year over year, and it is now the clear number two, behind only Tesla (TSLA -0.47%) in EV production.
Barra also gave a strong outlook for software and services revenue (things like OnStar, Super Cruise, and other non-vehicle sources). She said that the company expects deferred revenue from software and services to rise by 40% in 2026 to $7.5 billion, and keep in mind that these are generally high-margin revenue streams.
While management acknowledged the competitive environment in the automotive industry, Barra also said the company's cash flow is sustainable, a key factor in the decision to raise the dividend.
Is GM still a smart buy today?
General Motors' stock price has risen by more than 50% over the past year, but it's still relatively cheap by most valuation metrics. It trades at just 7 times the company's 2026 EPS guidance, and General Motors is arguably doing a better job than any other automaker (excluding Tesla) of executing an electric vehicle strategy that shows a clear path to profitability.
There's a lot to look forward to, including the rapid growth of high-margin software revenue and some impressive product releases planned for the next few years. For example, GM plans to launch eyes-off autonomous driving in certain vehicles in 2028, and to introduce its own contextual AI to improve the driver's experience and safety of its vehicles. The new Silverado and Sierra will be released next year, and management sees a "clear and achievable" path back to 8%-10% EBIT margins (6.9% in 2025).
In a nutshell, GM's stock has performed well, and justifiably so. But there could still be plenty of upside potential in the years ahead, and that's why it's one of the largest stock positions in my own portfolio.
