Goldman Removes Ford From Conviction Buy List, Downgrades

Ford Motor Company F reported its 2Q16 results below expectations and announced a profit warning for 2016. Goldman Sachs’ Patrick Archambault downgraded the rating on the company from Buy to Neutral, while reducing the price target from $15 to $13. The analyst commented that the Ford profit outlook had moved “to ex-growth.”

“After having worked through a material worsening in Ford’s pricing, volume, and FMCC outlook, earnings have moved into ex-growth territory vis a vis 2015 on our estimates,” analyst Patrick Archambault wrote. He added that there were significant headwinds in 2H16, which would likely prevent the stock from outperforming over the next 6-12 months, “especially given the stage of the cycle.”

Removing Ford from the Conviction Buy List, Archambault noted that Ford’s shares had tumbled 17 percent since it was added to the List on June 23, 2015. During the same period, the autos sector had lost 23.7 percent.

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Cloudy Prospects

The 1H16 results indicate that a strong product cycle in trucks had not been sufficient to protected Ford from the challenging pricing environment. The company seems to be on track to “essentially reverse much of the strong price performance of 2015,” the analyst commented. He also expressed concern regarding Ford’s product positioning in Asia given the weaker-than-expected performance.

The EPS estimates for 2016 and 2017 have been reduced from $2.03 to $1.85 and from $2.15 to $1.92, respectively. With soft earnings in 2016, Ford may be hoping for the Super Duty launch and improvement in emerging markets to help the company return to the 2015 level of profitability by 2017.

Archambault commented, however, that “the growth argument [was] no longer compelling” and that there was “diminished earnings visibility.”

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