General Motors (GM) and Ford (F) stocks have been impacted by the companies’ dull second-quarter earnings. Of the 20 and 19 analysts covering GM and Ford, 70% and 42% recommend “buy” or “strong buy.” Of the analysts covering Ferrari (RACE) and Fiat Chrysler (FCAU), 67% recommend “buy” or “strong buy.” Meanwhile, Tesla (TSLA) has been rated as “buy” or “strong buy” by 31% of analysts covering the stock.
Price targets for auto stocks
Analysts’ price target for GM implies higher gains than does their Ford price target. Their mean price target of $48 for GM implies a 30% gain, and their mean target of $11 for Ford implies a 23% gain. Evercore has raised its target for GM stock from $44 to $50, and Citigroup has raised it from $67 to $68. Credit Suisse has raised it from $48 to $50. For Ford stock, Morgan Stanley has upgraded it from “equal weight” to “overweight.” It raised its price target from $10 to $12. Analysts’ mean targets for Tesla, Fiat, and Ferrari imply 15%, 57%, and 9% gains, respectively.
GM, one of analysts’ favorite auto stocks
Most analysts view GM stock favorably. In the second quarter, GM’s EPS of $1.64 surpassed analysts’ estimate by 14%. The company’s North American EBIT margin was healthy at 10.7% due to the company’s newly launched light-duty pickup trucks and cost savings. GM has saved about $1.1 billion in costs year-to-date.
Analysts expect the company’s earnings to rise 3% this year. Meanwhile, GM expects the year’s second half to be better than the first half, thanks to launches, cost-saving programs, and strong heavy-duty pickup sales. In the second quarter, the company’s North American operating earnings rose 13% YoY (year-over-year). The company sold 747,000 vehicles in the US, led by a record rise in crossover sales.
In the US, Chevrolet crossover sales rose by 14% YoY. Cadillac, Buick, and GMC sales rose by 3% YoY, 4% YoY, and 11% YoY, respectively. Although Chevrolet trucks sales fell by 5% YoY, they constituted 33% of the vehicles sold in the US in the second quarter.
Analysts are divided on Ford stock
Analysts have mixed opinions on Ford stock due to its weak performance but stronger outlook. They expect Ford’s EPS to fall by about 1% to $1.29 this year but rise by about 8% to $1.40 next year. Meanwhile, Ford expects EPS of $1.20–$1.35 in 2019, compared with $1.30 in 2018. The company expects its North American, Chinese, and European markets to benefit from markets strengthening and costs improving. Ford’s stronghold in North America is its F-series vehicles. In the second quarter, Ford’s SUV sales, which include Expeditions, EcoSports, and Edges, boosted pickup sales. Ford is also investing about $11.5 billion in developing electric vehicles. Its recently announced F-150 electric truck is a step in that direction.
Overall, analysts expect Ford’s profits to improve next year. Many analysts may be recommending “hold” for its stock as they wait for the company’s 2019 results.