Ford got clobbered on Monday, dropping almost 8%after the company announced that it was going to lose billions in Europe and South America in 2014.
Ford also announced a recall of 850,000 vehicles that could cost $US500 million this year and further erode the bottom line.
On the plus side, Ford expects to make money in the U.S., as the auto market continues to surge.
Ford dipped another 2% in trading on Tuesday, closing at just under $US15 per share.
Prior to Monday’s selloff, Ford watchers on Wall Street and in the media were preoccupied with how a major redesign — a re-engineering, really — of the F-150 pickup truck, using aluminium instead of steel to shed weight, might affect Ford’s business. Concern has now shifted to how the company’s overall operations will perform for the rest of the year and into 2015.
Morgan Stanley analyst Adam Jonas credited Ford management with being gutsy enough to dispense bad news and get it over with ahead of third-quarter earnings, which won’t be reported until the end of October. In a note published Tuesday, he wrote:
If one of Ford’s missions was to knock some sense into 2015 consensus, we believe it was accomplished. Somebody had to tell the market to dial back the enthusiasm at this point in the cycle and to mark-to-market several macroeconomic factors outside of anybody’s control…
Ford management did indeed highlight those macro factors, specifically the failure of the Russian market to make up for overall weakness in Europe (no surprise given that Russia is currently enduring economic sanctions as the crisis in Ukraine grinds on) and well as problems with inflation and foreign exchange rates in South America.
Jonas added, “Investors may not like the message, but it was genuine, it was real and, in our view, absolutely reasonable.”
However, he sounded a moderately ominous note about the new F-150, suggesting that production difficulties could eat into Ford’s profits for what is after all the bestselling vehicle in America, historically.
But overall, his note expressed confidence in Ford after a rough trading session on Monday.
Sterne Agee’s Michael Ward affirmed his $US20 per share target price, which looked reasonable Monday morning when Ford was at about $US16 but seems riskier now that the stock has dropped to $US15 (What a difference a dollar makes!). He trimmed earnings expectations for 2014 and also expressed concern about the F-150 revamp while restating his views on the truck’s critical importance to Ford’s success going forward.
UBS analysts Colin Langan revised his price target on Ford to $US19 from $US22 on Monday’s news but continued to stress a bullish thesis overall — and broke slightly with the F-150 worriers by arguing that Wall Street isn’t anticipating enough upside from the new truck.
He pointed to a survey, released by UBS in July, that indicated a strong appetite among consumers for the new F-150 and predicted increased cost from the switch from steel to aluminium of only about $US600 per vehicle.