A potential serious recession on the horizon has some analysts worried about shares of major automakers. Ford (F) and General Motors (GM) both received downgrades on Monday, despite rising third-quarter sales. Ford stock and GM stock both tumbled after the opening bell following the downgrades.
XFord stock fell 7.5% on Monday, while GM stock dropped nearly 6%.
UBS analyst Patrick Hummel says the overall sector outlook for 2023 is "deteriorating so fast that demand destruction seems inevitable." He expects a shift from under- to oversupply, which will lead to a price-and-mix led drop in margins.
Hummel predicts GM's earnings will more than halve next year and that the "rapidly deteriorating top-down picture" makes it unlikely the stock will rise over the next six to 12 months. Hummel downgraded GM stock to neutral from buy and cut his price target to $38 from $56.
He has a much more negative view of Ford. Hummel says Ford ranks behind General Motors and Stellantis (STLA) in terms of North American EBIT — earnings before interest and taxes — margins, and "in light of the (fact the) likely recession has the highest risk of break-even points." He sees the company's EBIT margin halving year over year to 3.6% and free-cash flow falling around the break-even level. Ford's European businesses could face losses against the worsening macro backdrop, which would set back its restructuring efforts. Ford has one of the least-attractive risk vs. reward profiles among Western automakers on a 12-month view, Hummel noted. He downgraded F stock to a sell rating, and lowered the price target to $10 from $13.
The stock downgrades come after Ford and General Motors reported increases in third quarter sales. Ford sales rose 15.9% to 464,674 vehicles, just below expectations of 473,595 vehicles. General Motors sold 555,580 in Q3, up 24% year over year, and beating expectations of 539,028. However, both saw quarter-over-quarter sales declines. Ford sold 483,688 vehicles in Q2, while GM sold 575,911 cars in the second quarter.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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October 11, 2022 at 12:03AM
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Ford Stock, General Motors Fall After Analyst Downgrades - Investor's Business Daily
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