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Market Overreacted To Ford Motor Company's Decreased Profit Outlook, Analysts Say

Market Overreacted To Ford Motor Company's Decreased Profit Outlook, Analysts Say
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Earlier this week, Ford Motor Company (NYSE: F) CEO Mark Fields informed investors that the automaker is decreasing its profit outlook for the rest of the year by approximately $1.5 billion less than it was slated for in July, The Wall Street Journal reported.

After the announcement, Ford’s stock experienced a major sell-off and dipped from above $16 a share to the $14.50 level.

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AutoTrader Group Director of Automotive Relations Michelle Krebs told Benzinga that the market overreacted to the news.

“Yes, this year is not going to be as strong as Ford anticipated, but some of it we saw coming,” she said.

External Factors

The change has come from external elements that Ford can’t control, IHS Senior Analyst Stephanie Brinley told Benzinga, and is not indicative of any sort of downturn for the company.

Kelley Blue Book analyst Matt DeLorenzo also attributed the decreased forecast to outside factors.

“The announcement underscores the unpredictability of the automotive business since much of the downgrade is attributed to recall costs and the economic meltdown in South America where an expected loss of $100 million ballooned to nearly a $1 billion,” DeLorenzo told Benzinga.

The South American market is definitely a challenge, Krebs said, and it’s been deteriorating over the years.

Geopolitical tensions and sanctions in Russia are also affecting Ford, as well as the rest of the auto industry, Krebs said. General Motors Company’s (NYSE: GM) Opel Group cut production and eliminated jobs in Russia just last month, according to Reuters.

“The industry had anticipated selling three million cars,” Krebs said. “It’s down to two million.”

Residual Recall Effects

What was more surprising to Krebs than the struggling foreign markets was the fact that Ford is spending $1 billion on recalls this year.

“I was kind of surprised at the number, but GM is spending a whole lot more than that,” she said.

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Because GM is doing a lot of recalls, Krebs explained, other automakers are also doing a lot of recalls because they don’t want to get caught not reporting issues.

“Everybody is going to have higher recall costs,” she said.

Still A Healthy Company

Despite this recent news, DeLorenzo said the rest of the year doesn’t look so bleak for Ford with the launch of a new Mustang and the F-150 pickup.

“Ford has a built-in market for the F-150, thanks to its huge owner body and may be able to attract some new buyers with the lightweight aluminum technology and the higher fuel efficiency,” he said.

Krebs echoed similar sentiments, saying Ford is still a healthy company with good prospects for growth in the future.

Disclosure: At the time of this writing, the author had no position in the equities mentioned in this report.

Latest Ratings for F

Sep 2016NomuraInitiates Coverage onBuy
Sep 2016Buckingham ResearchDowngradesBuyNeutral
Aug 2016JefferiesInitiates Coverage onUnderperform

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