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Shares of Ford, General Motors collapse after analyst downgrade


Some analysts worry that stocks in major automakers could trigger a potentially severe recession. Ford (F) and Synthetic engine (GM) both dropped on Monday, although sales in the third quarter rose. Ford stock and GM stock both fell at the opening bell following the downgrade.




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Ford stock fell 7.5% on Monday, while GM stock fell nearly 6%.

UBS analyst Patrick Hummel said the overall industry outlook for 2023 is “deteriorating so rapidly that a destruction of demand seems inevitable.” He expects a shift from undersupply to oversupply, which will lead to a drop in profit margins between price and mix.

Hummel predicts GM’s earnings will more than halve next year, and that the “rapidly deteriorating top-down picture” makes the stock unlikely to rally over the next six to 12 months. Hummel downgraded GM stock to neutral to buy and cut its price target to $38 from $56.

He has a much more negative view of Ford. Hummel says Ford is behind General Motors and Stellantis (STLA) in terms of North American EBIT – earnings before interest and taxes – margins, and “due to (the fact that) a recession has the highest risk of a break-even point.” He found the company’s EBIT margin halved year-over-year to 3.6%, and free cash flow fell around breakeven. Ford’s European businesses could face losses amid a deteriorating macro environment, which will hamper its restructuring efforts. Ford has one of the least attractive risk-versus-reward profiles among Western automakers from a 12-month perspective, Hummel noted. He downgraded stock F to sell and lowered his price target to $10 from $13.

Stocks drop after Ford and General Motors third quarter sales report increased. Ford sales rose 15.9% to 464,674 vehicles, below expectations of 473,595 vehicles. General Motors sold 555,580 units in the third quarter, up 24% year-on-year and beating expectations of 539,028. However, both saw quarterly sales decline from the previous quarter. Ford sold 483,688 vehicles in the second quarter, while GM sold 575,911 vehicles in the second quarter.

You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison

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