Stock Analysis & Ideas

Ford’s Promising North America Trends Can’t Detract From Troubles Elsewhere; Analyst Says ‘Sell’

The coronavirus has dealt a serious blow to the auto industry. Less travel naturally equates to less cars on the road while a struggling economy will also result in a reduction in new car purchases. Auto giant Ford (F) hasn’t been spared by the coronavirus and has the market’s equivalent of car body dents to show for its struggles. To wit, F stock is down by 28% since the turn of the year.

However, the company’s latest quarterly report was not a total disaster. Ford’s Q2 guidance called for a loss of more than $5 billion in the quarter, as the company warned investors COVID-19 had dealt it a severe blow. In the end, the loss came in at an adjusted EBIT of $1.9 billion, considerably better than its forecast as well as the Street’s call for a loss of $4.71 billion.

Nomura analyst Anindya Das applauds Ford’s better than expected performance in North America, where the company added one full percentage point of retail share due to a robust showing of its F-150 and Ranger trucks, and Explorer and Lincoln Aviator and Corsair SUVs. However, looking at its performance in other key regions, Das believes Ford’s troubles are far from over.

The analyst said, “We think Ford will continue to struggle in markets outside of North America, especially in an environment of eroding auto sales due to 1) rising unemployment and falling incomes because of a global economic slowdown, and 2) lower replacement demand as people increasingly work from home and miles traveled falls. Additionally, risks from a no-deal Brexit (27% of Ford’s Europe sales in 2019 were in the UK) are on the rise. In our view, the outlook for shareholder returns is weak, as the company pays down debt and repairs its balance sheet.”

Accordingly, Das rates Ford shares a Reduce (i.e. Sell), although the price target gets a boost from $3.5 to $4.9. Nevertheless, the new target still indicates shares will drop by another 30% over the coming months. (To watch Das’ track record, click here)

The Street’s outlook for the Blue Oval is not as grim. F’s Hold consensus rating is based on 3 Buys, 8 Holds and 1 Sell. At $7.34, the average rice target could provide investors with 5% upside from current levels. (See Ford stock-price forecast on TipRanks)

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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