Why Ford Earnings Forecasts May Be Too High For The Next Few Years


Ford Motor (F) is unlikely to see meaningful impact to the bottom line any time soon from the raft of changes being spearheaded by its new chief executive, in the view of a prominent Wall Street auto analyst.

XAutoplay: On | OffRBC Capital Markets' Joseph Spak downgraded Ford stock to sector perform Monday, writing to clients: "A border-adjusted tax never passed and in the interim Ford changed its CEO, making the stock more of a turnaround story."

He added, as has another top auto analyst, that "specifics are light" on how exactly new chief Jim Hackett plans to drive a turnaround for the nation's second largest automaker. Spak also cautioned that Ford's newly announced $14 billion cost-cutting efforts would not have their intended impact "until 2019 or 2020 at the earliest" given the long lead times in the auto industry.

"In the interim, we believe consensus 2018 EPS forecasts may be (about) 8% too high," Spak wrote, chopping his fiscal year 2018 EPS view by 5 cents to $1.40, vs. Zacks consensus analyst estimates of $1.50. "As such, while we do have faith in an eventual turnaround, we can't recommend adding to positions at present."

Ford execs themselves delivered a similar caution during Hackett's first major event with investors on Oct. 3. Outlining a new five-year strategic plan at that event, Hackett signaled a pivot toward utilities and trucks, and away from less-profitable passenger cars. The automaker will also funnel investments toward electric cars, self-driving cars and emerging mobility solutions.

Spak said "while we believe new CEO Jim Hackett has a solid long-term vision, it is very early in the turnaround." And Hackett's "very high-level" thinking needs to be grounded with "more specifics and a flush-out of the ideas," he suggested.

Ford stock slipped in morning trade on the stock market today before reversing 0.5% higher. Shares declined 2% last week, snapping seven consecutive weeks of gains and failing to clear a 12.56 entry off a saucer-with-handle base.

Among other auto stocks, General Motors (GM) gave up nearly 1% early Monday as shares took a breather after Friday's new high of 46.11.

Tesla (TSLA) dived 1.8%. Shares have now dropped 6% below the 370.10 buy point that they cleared on Sept. 14, putting them back in sell range. Ferrari (RACE) added 0.8% as the stock eyes a 118.20 buy point, while Toyota Motors (TM) and Fiat Chrysler (FCAU) eased 0.2% each.

IBD'S TAKE: GM is showing this key technical trait that can be used to unearth top growth stocks early in their upward moves.

On a positive note, Spak called Ford's dividend yield and valuations "attractive" and said they lend support to the stock. Ford yields 5%.


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