Investors are getting the GM earnings story completely wrong

General Motors topped analysts’ third-quarter top- and bottom-line estimates, but that didn’t stop the post-earnings selloff that has seen the stock drop 7.2% over the last two sessions, including a 1.15% decline on Wednesday, Oct. 21.

The firm tightened its EBIT guidance slightly to between $14.5 billion and $15.5 billion, down from its previous range of $14 billion to $16 billion. It also tightened its earnings per share guidance to between $12.75 and $13.75 per share, down from its previous view of $12 to $14 per share. And that was enough to send the stock reeling.

However, analysts at Deutsche Bank say that while the market has priced in the headwinds facing GM, it is overlooking the execution the company has demonstrated this year.

Deutsche Bank is still bullish on GM

Deutsche Bank analyst Edison Yu says the firm is one of the “dip buyers” on yesterday’s pullback in a note published Oct. 21.

¨The stock reacted negatively to softer 2027 outlook which is understandable,¨ Yu said. ¨However, GM has repeatedly shown it can absorb a variety of headwinds and deliver upside to expectations. Moreover, the new $20 billion buyback authorization represents 30% of market cap and will further shrink the share count and support EPS growth (even in a flattish EBIT environment).¨

Related: GM shares are on sale for investors willing to buy into weakness, analyst says

The firm reiterated its buy rating, though it did lower its price target to $98 from $101. GM shares were trading at about $76 per share at the close on Oct. 21.

DB analysts focused on the good news from the just-concluded quarter rather than the more conservative outlook, noting that the car maker reported its third consecutive quarter of ¨strong results with EBIT higher than our consensus estimates.¨

The earnings and revenue beats were driven by GM’s North American operations, which benefited from $600 million in cost improvements and $ 400 million in volume contributions.

General Motors is optimistic about its future.

Igor Alecsander / Getty Images

But what about GM’s guidance?

Deutsche Bank analysts noted that GM narrowed its guidance this time around and that ¨investor expectations for the year were biased towards the upper end of the range coming into the quarter.¨

They also say the tightened future guidance is a reflection of the strong present the company is experiencing.

¨The $500 million narrowing at both the high and low ends is driven by better-than-anticipated volumes, offset by higher-than-expected costs, most of which will flow through in 4Q.,¨ Yu said.

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While the firm is bullish on GM’s future, it says growth hinges on whether the company can find additional ways to cut costs. But it expects Q1 2027 to be its weakest quarter next year as the company’s changeover to its next-generation full-size pickups will lead to plant downtime and slower line rates. But the firm believes in General Motors’ plan to reduce costs.

¨To offset the cost pressure, management plans to pursue structural cost-reduction programs, a lever it has used before,¨Yu said. ¨Overall, we see 2027 as a year where truck-driven price/mix and cost actions must work harder just to absorb commodity inflation, which limits visibility of meaningful EBIT growth.¨

Still, the firm expects free cash flow from automotive operations to increase again in 2027 as it has this year. ¨Meanwhile, GM has completed its $6 billion buyback announced in January and authorized a new $20 billion program, signaling confidence in its FCF outlook and its view that the stock is undervalued.

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