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Why Analysts Continue to Favor GM over Ford in December 2018

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Dec. 13 2018, Updated 9:00 a.m. ET

Wall Street on US automakers

According to the latest data compiled by Reuters, 19% of the analysts covering Ford stock (F) gave it “buy” ratings. By comparison, a much higher percentage of about 57% of analysts covering GM stock gave it “buy” ratings. These ratings were based on 21 analysts’ views, which were compiled by Thomson Reuters on December 10, 2018.

Another 71% and 38% of these analysts recommended a “hold” for Ford and GM, respectively, while the remaining 10% and 5% suggested a “sell” for the automakers, respectively.

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No major upside potential

In the last six months, a higher percentage of analysts have turned cautious on Ford stock. As of December 10, Wall Street analysts’ 12-month consensus target price for Ford was $9.89, which implies a 16.1% upside potential from Ford’s market price of $8.52. At the same time, analysts’ consensus target price for GM stock was $45.30, which was 31.6% higher from its market price of $34.42.

Analysts’ consensus target price on Ford was much higher at $11.00 about three months ago. We must also not forget that Ford stock has lost 9.2% in the last month, while GM stock has gone down by 2.6%. During the same period, Toyota (TM) and Tesla (TSLA) also have gone up by 4.7% and 4.2%, respectively.

Analysts favor GM over Ford

In the first three quarters of 2018, GM’s US sales growth rate was better than direct peer (XLY) Ford’s sales growth rate. Also, in the third quarter, Ford’s revenue rose on a YoY basis, while its profit margins continued to disappoint investors. In contrast, GM reported solid gains in its profitability in the third quarter. This could be one of the main reasons why analysts don’t see much upside potential on Ford stock at the moment.

General Motors’ better profit margins and its stronger focus on new technology including autonomous vehicles and electric vehicles may give it an edge over Ford.

Read on to the next part where we’ll compare US auto companies’ valuation multiples after Ford’s November sales data.

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