According to the forecast of one expert, investors should steer clear of Ford stock. A recession is on the horizon; as a result, U.S. car manufacturers and, in particular, the shares of Ford Motor Company (NYSE:F) should be sold.
Ford Stock from Hold to Sell
On Monday, UBS analyst Patrick Hummel moved the Ford stock from the Hold rating to the Sell rating. That was his new price goal from $13 down to $10.
It was brought to Hummel’s attention that Ford’s operational profit margins in North America are lower than those of General Motors GM -5.13% (GM) and Chrysler parent Stellantis (STLA). The analyst noted in the research that he was downgrading that “in light of the expected recession, has the highest probability of testing break-even thresholds,” which was included in the report.
Through the end of June, Ford’s sales in North America were around $51.4 billion, resulting in an operating profit of approximately $4.9 billion. That equates to a profit margin of around 9.5% of the total.
During the first half of 2022, the operating profit margin for Stellantis North America is projected to be around 18.1%. Although GM’s operating profit margin was comparable to Ford’s, GM’s production delays caused by a lack of available parts caused some of the company’s earnings to be moved from the second to the third quarter.
If a recession is on the horizon, Ford’s Hummel doesn’t think it will be possible for the firm to reach its target of ten percent operating profit margins. As a result of the declining profit margins, he revised his forecast for the company’s earnings in 2023 to 52 cents per share, down from 1.35 cents.
Additionally, Hummel lowered its recommendation for the GM stock from Buy to Hold. His price objective for GM shares dropped from $56 per share to $38 per share. He kept his Buy recommendation on shares of Stellantis, a European-based company. Still, He lowered his price objective for each share by one euro, bringing it down to €17.50.
After the downgrading, Ford stocks continued to decline, falling by 7%. Stellaris shares were up modestly, while General Motors’ shares fell by 5%. In the early going of trading on Monday, the S&P 500 (SPX –1.09%) and the Dow Jones Industrial Average (DJIA –0.68%) showed gains of around 0.1%.
The declines compound what has already been a challenging year for car investors. Ford stocks, General Motors, and Stellantis have fallen by 41%, 43%, and 36%, respectively, since the beginning of trade on Monday. In addition, the Russell 3000 IndexRUA -1.29% has some car and auto components firms that have dropped by around 37% this year.
Car stocks have been impacted harder than most others due to faster inflation and higher interest rates, which are grounds for a prospective recession.
As a result of the moves, over 73% of the analysts that follow GM stock currently rate shares as Buy. About 58% of the stocks included in the S&P are rated as having a Buy recommendation.
Both Ford and Stellantis maintained the same percentage of analysts who recommended purchasing the stock, with 44% of those covering Ford stock recommending a purchase and 77% of those covering Stellantis stock recommending a purchase.
The relative ratings may be influenced in some way by the starting valuation. Stellantis shares trade for almost three times the company’s expected earnings for 2023. General Motors and Ford are traded for around five and six times their market value, respectively.
Featured Image: Megapixl @Josefkubes
Author Valerie Remorosa 
