Barclays Sees Ford, GM Outperforming Auto Suppliers

Although the macro backdrop for autos appears to be softening heading into 2Q16 earnings, the stock valuations already seem to be reflecting these risks, Barclays’ Brian A. Johnson said in a report. He added that Ford Motor Company F and General Motors Company GM would likely outperform suppliers and could potentially outperform other large cap names.

The macro situation for autos is worsening, with uncertainty and/or concern in each of the key global regions, analyst Brian Johnson noted. He added, “We were previously hopeful that U.S. auto sales could stay on a plateau in the 17 million range over the next 1-2 years. However, we are modifying our outlook for U.S. light vehicle sales to an ‘eroding plateau.’”

The U.S. sales volume estimates for 2016, 2017 and 2018 have been reduced from 17.6 million to 17.3 million, from 17.5 million to 16.7 million and from 17.2 million to 16.1 million, respectively. Moreover, prospects in the U.K. and Europe are impacted by political risks and uncertainty. The sales growth estimate for 2017 has been lowered from 2.4 percent to a decline of 0.6 percent.

Investment Thesis And Estimates

Johnson maintains an Equal-Weight rating on Ford, while reducing the price target from $14 to $13. The EPS estimates for FY1 and FY2 have been reduced from $2.01 to $1.95 and from $2.04 to $1.67, respectively.

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The analyst maintains an Equal-Weight rating on GM, with a price target of $36. The EPS estimates for FY1 has been raised from $5.70 to $5.75, while that for FY2 has been reduced from $5.80 to $5.49.

The Barclays estimates for both Ford and GM are ahead of consensus for 2Q. “And given depressed valuations and particularly negative sentiment around the OEMs, like 1Q, we think a 2Q beat combined with maintained guidance could drive the stocks to outperform in the very near term,” Johnson wrote.

The analyst has an Underweight rating on Tesla Motors Inc TSLA, with a price target of $165.

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