BofA Downgrades Ford To Neutral Following 'A Big Q1 Beat'

Ford Motor Company F reported its 1Q results significantly ahead of expectations. BofA Merrill Lynch’s John Murphy downgraded the rating for the company from Buy to Neutral, while raising the price objective from $16 to $17.

Ford delivered an impressive 1Q beat, with EPS of $0.68 versus the BofA estimate of $0.45 and consensus expectation of $0.47. Investors rewarded the stock, taking shares up 3 percent after the company reported its results.

Improvements To Slow

Analyst John Murphy commented that while Ford’s results are likely to be strong through 2016 and beyond, the pace of improvement could slow from 2H16. He added that there were “no obvious catalysts on the near-term horizon that should drive a meaningful appreciation in the share price.”

Ford indicated that its 2016 results are likely to follow a more normal seasonal pattern. Murphy pointed out that during times of normalized earnings, Ford’s profits are frontend loaded, with 60 percent of earnings being generated in 1H. This suggests that the company’s results may be strong again in 2Q, and then slow meaningfully in 2H.

“This may be further exacerbated by the upcoming changeover and launch of the SuperDuty in 3Q & 4Q. And while there should be a material benefit from the SuperDuty launch in 2017, the extreme investor concerns over the US cycle nearing a peak (we don’t agree) and the fade in 2H earnings may be met with pressure on the stock,” the analyst said.