General Motors appears poised to ride out the coronavirus recession on solid ground. Investors have taken notice. | Image: GM-SILVERADO/ REUTERS/John Gress/File Photo

  • GM stock is flying right now, having risen 24% over a month and 8% over the past few days.
  • GM’s recent gains all stem from its better-than-expected Q1 report, which announced an unlikely profit.
  • The report set in motion four other factors that caused GM stock to rise.

GM (NYSE:GM) stock is on the up. Barely a month ago, the carmaker’s share price sunk to $18.04. On Thursday, it closed at $22.44, sealing a 24% turnaround for the company.

Why has General Motors suddenly become a Wall Street favorite? It stems mostly from its better-than-expected Q1 earnings report.

Wall Street Loves GM’s Q1 Report

Released on Wednesday, General Motors’ Q1 report beat expectations. The company reported a total profit of $294 million, or 62 cents per share. Analysts called for an EPS of 18 cents.

Even though General Motors’ fundamentals are down compared to a year ago, the surprisingly good Q1 report shows that business is sound.

On the day the earnings were released, GM stock appreciated 3%.

GM stock. | Source: Yahoo!

Investors Like GM’s Candor and Openness

Not only was GM’s Q1 report better than expected, but it was refreshingly detailed and honest. The fact that General Motors gave transparent information on the impact of coronavirus on its business was especially reassuring for investors.

As RBC Capital’s Joseph Spak wrote in a recent note:

GM delivered a master class in terms (of) disclosure and transparency. The company’s commentary around the specifics of the impacts on the business were detailed and articulate.

Again, it’s hard to have a genuinely fantastic Q1 report in the current climate. But GM’s cautiousness and forward-looking outlook revealed that it has robust plans to soften the blow from coronavirus:

GM reported particularly solid 1Q20 results, reflecting strong execution in mitigating the early impact from Covid shutdowns, including large structural cost reductions, and robust sales of profitable trucks in the quarter.

Deutsche Bank U-Turn on GM Stock

This led to the next reason why Wall Street is going crazy for GM stock right now. The company impressed Deutsche Bank so much that the German bank revised its rating for the carmaker.

A month ago, Deutsche had downgraded GM stock to hold, citing liquidity concerns. On Thursday, it upgraded GM stock to buy.

Source: Twitter

On the day of the upgrade, GM stock rose by 2.5%.

GM Is Raising More Money

A day after releasing Q1 results, General Motors announced it had raised $4 billion in new bonds due between 2023 and 2027 to be used for “general corporate purposes.” The company also said it’s working on a credit agreement that will boost borrowing capacity by $2 billion.

Not only that, but GM revealed it had $33.4 billion of available liquidity at the end of Q1. In other words, it has the means to weather a coronavirus shutdown. Once again, this reassures investors.

GM Is Doing Better Than Other Detroit Carmakers

One last reason why GM stock is on the up: It’s better positioned than its rivals to come out of the coronavirus shutdown in a strong position.

Ford’s Q1 report made for some stern medicine after the company lost $2 billion. Meanwhile, GM made the aforementioned $294 million net profit.

Investors know that cars will always sell, particularly once the coronavirus pandemic is over. But they want to place their bets with the likeliest carmaker to do well after life returns to ‘normal.’

At the moment, that carmaker is General Motors.

This article was edited by Sam Bourgi.