Ford's Stock Falls, But Some Analysts Say Buy On The Dip

Ford Motor Company's F lowered expectations for full-year earnings hammered the stock on Thursday and brought a downgrade from a sell-side analyst, but a couple others said the expected difficulties and now lower price present a buying opportunity.

Ford said it expects more slumping sales and higher warranty and incentive costs to be an issue and lowered its full-year guidance, despite reporting better-than-expected third quarter earnings. Also in the mix are troubles with the rollout of the newest Ford Explorer model.

The Analysts

Deutsche Bank’s Emmanuel Rosner downgraded Ford from Buy to Hold and lowered the target price from $12 to $11.

Morgan Stanley’s Adam Jonas reiterated an Overweight rating and a $12 price target.

Bank of America analyst John Murphy reiterated a Buy rating and $13 price target on the stock.

See Also: How Large Ford Option Traders Are Reacting To Disappointing Earnings

The Theses

Rosner said the downgrade reflected ongoing near-term earnings outlook deterioration that are a result of several issues, including growing warranty and launch costs, market pressures on prices in the U.S. and slow China sales.

Rosner also fears the benefits from the company’s $7 billion restructuring will take longer than expected and the gains might be offset by big spending needs for American product launches next year, and for emissions compliance in Europe.

“And with no real inflection point expected in free cash flow before 2021, we also worry about Ford’s preparedness for an eventual US industry downturn, and the impact it could have on its balance sheet,” Rosner wrote in a note.

Jonas and Murphy both said Ford’s troubles are likely priced in to the stock, and suggested now is the time to buy.

A barrage of bad news, including a downgrade of Ford’s credit rating to junk status, has been well noted by investors, Jonas said.

“Despite our broad concern on the deteriorating macro backdrop, we believe the micro turnaround underway at Ford should drive more positive sentiment over time,” he wrote.

Murphy agreed, saying some of Ford’s 2019 problem has to do with its troubled Explorer roll-out, “which should be a non-repeat into 2020,” and that much of the bad news is accounted for in the price.

“We would look at weakness in the shares as an opportunity to increase exposure,” Murphy wrote.

Price Action

Ford shares traded down 6.2% at $8.64 on Thursday.

Ford CEO Jim Hackett, right, with Executive Chairman William Ford Jr. in Detroit. Benzinga file photo by Dustin Blitchok.