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Why the Majority of Analysts Recommend a ‘Hold’ on Ford Stock

Jitendra Parashar - Author
By

Aug. 31 2018, Updated 9:01 a.m. ET

Analysts on Ford stock

According to the data compiled by Reuters on August 27, only ~18.0% of the 22 analysts covering Ford Motor Company (F) gave it a “buy” recommendation. About 73.0% recommended a “hold” on the company’s stock, and the remaining 9.0% of analysts suggested a “sell.”

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Only 10% upside potential

On August 27, Ford’s consensus 12-month target price was $11.00. This target price reflected ~10.0% upside potential from its market price of $9.99. In the last month, the consensus target price for Ford has fallen from $12.45 to $11.00.

Ford stock remained negative in the first two quarters of the year. Its stock fell ~10.3% in the first quarter, and it fell 0.10% in the second quarter. In the third quarter so far, Ford stock has extended these losses and has dropped 9.8%.

Recent fundamentals

In July, Ford’s US sales fell 3.1% YoY (year-over-year) to 194,026 units. The company’s small car and SUV sales fell 27.7% and 1.5% YoY, respectively, while its truck sales rose 10.2%.

Strength in its June truck sales, which typically yield higher profits than its small car sales, could help Ford to improve its second-quarter margins. On the negative side, its weakening US retail segment sales could be a cause for concern. In July, Ford’s US retail sales fell 10.4% YoY.

Ford’s adjusted EPS for the second quarter fell ~52.0% YoY to $0.27, which was much lower than Wall Street analysts’ estimate of $0.35. During the quarter, Ford’s global revenues fell 2.5% YoY to $38.9 billion.

Auto companies (XLY) Ford, Tesla (TSLA), General Motors (GM), and Fiat Chrysler (FCAU) generate a large portion of their revenues from the US market. In 2017, Ford, Tesla, and GM garnered about 60.0%, 53.0%, and 76.0% of their total revenues, respectively, from the US market. FCAU generated ~62.0% of its revenues from the North America region in 2017. As a result, these companies are highly sensitive to US auto demand.

In the next part, we’ll look at analysts’ recommendations for GM stock in August.

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