JP Morgan On Ford: No Signs Of Imminent Downturn

J.P. Morgan’s Ryan Brinkman reiterated an Overweight rating on Ford Motor Company F, with a price target of $18.

No Imminent Downturn

Following discussions with CFO Bob Shanks and V.P. & Controller Stuart Rawley at Ford Motor’s “Let’s Chat” event on March 22, Brinkman mentioned that current business cycle indicators do not point toward “any imminent risk of a downturn.”

“Even in the case of a severe downturn, Ford's internal analysis suggests the region would remain profitable in Year 1 of such a downturn, with potentially improving profitability from Year 2 onwards,” the analyst noted.

Investors “Unduly Concerned”

However, Brinkman pointed out that investors appeared “unduly” concerned regarding the current state of the automotive finance market, given that lending standards continued to be robust.

According to the J.P. Morgan report, “While there could be some pressure on Ford Credit profits from cyclically lower used car prices, the segment still targets 2016 profits to be equal to or better than 2015 levels.”

In addition, Brinkman believes that Ford Motors’ higher inventory levels and fleet sales in the U.S. were due to temporal factors and would return to the normal levels.

Outside The U.S.

The analyst also stated that the company continued to pursue aggressive cost reductions in South America, although the impact of its initiatives were being masked by the deteriorating industry volumes.

On the other hand, while Ford Motors has turned profitable in Europe, pricing in China too has begun to show signs of sequential stabilization.