Ford's Profitability, Free Cash Flow Will Peak This Year: Buckingham Downgrades Stock, Lowers Target To $12

Joseph C. Amaturo of Buckingham believes Ford Motor Company’s F earnings and auto free cash flow would peak in 2016. He downgraded the rating on the company from Buy to Neutral, while lowering the price target from $16 to $12.

Concerns

“Our prior rating and PT were predicated on a product cycle advantage, which we believe has run its course, as F-Series production volume will be under pressure in 2H16,” the analyst explained.

Amaturo believes volume and pricing trends for trucks could see some weakening going forward, especially in North America, and expressed concern regarding the passenger car market remaining challenged.

Related Link: Nomura Starts Coverage Of Ford, General Motors: 'Put Your Hands Up For Detroit'

“As a result, we believe that production estimates, accrual EPS and automotive free cash flow could be under pressure through 2017,” the analyst mentioned, while adding, “Moreover, given the expectation for rising interest rates and ATP pressure driven by moderating U.S. light vehicle demand, we now believe there is greater than a 50% chance of downside earnings risk in 2017 and 2018.”

Downside Support

However, despite the concerns and in the absence of a recession, Amaturo believes the downside risk on the stock would be limited, given the meaningful dividend support. The risk/reward is balanced at the current levels.

The EPS estimates for 2016 and 2017 have been lowered from $1.92 to $1.80 and from $2.09 to $1.60, respectively.

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