Is Ford Rolling To A Rebound After Its Q3 Warning

Is Ford Rolling To A Rebound After Its Q3 Warning
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  • Ford reiterated its full-year earnings guidance
  • Ford expects to have about 40,000 to 45,000 vehicles in inventory at the end of the third quarter
  • Ford’s current rating is “hold,” with a price target of $18. 28

Ford (NYSE: F)

crashed big on Tuesday, dropping more than 12% in triple average volume, ending the session at $13.09.



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It was the stock’s worst day in 11 years, and followed the company’s pre-earnings warning that it had incurred $1 billion in unanticipated supply-chain-related costs. Inflation played a part.

Prior to the release, shares had been struggling. Ford tried to rally in the summer like many other stocks but it failed in August. Even with Tuesday’s collapse, shares remained above their previous structure low of $10. 61, reached on July 5.

Ford said it expects to have about 40,000 to 45,000 vehicles in inventory at the end of the third quarter lacking certain parts currently in short supply. These parts include popular, high-margin trucks and SUVs.

The company advised that completing these vehicles will shift some revenue and earnings before interest and taxes to the fourth quarter. According to the company, the current quarter’s adjusted EBIT is expected to fall between $1.4 billion-$1.7 billion.

Even so, Ford reiterated its full-year earnings guidance. Wall Street did not let Ford off the hook for the near future, at least as far as price action is concerned.

Ford Price Target Unchanged

According to MarketBeat price target data, no analysts lowered their target on Ford following the announcement. The current rating is “hold,” with a price target of $18. 28, a potential upside of 39.68%.

How realistic is that, given this quarter’s shortfall?

The affirmation of the full-year guidance is a possible signal that the company is confident about its ability to sell the unfinished vehicles in the fourth quarter.

Nonetheless, the broad market dropped Tuesday. Even though Ford’s supply-chain concerns were rekindled, which most analysts believed were easing however, there is still cause for concern about Fed’s interest rate hikes.

In addition, some analysts believed Ford was getting through the well-documented semiconductor shortages better than others in its industry.

It’s possible shares will continue falling if Wall Street sees Ford suffering in the next quarter.

For example, a Wells Fargo analyst said he was concerned that inflationary costs may continue into the fourth quarter and even into next year.

A Deutsche Bank analyst made similar comments in a note, saying “It appears that across the industry, chip and components shortages may be improving at a slower pace than anticipated.”

As a whole, automakers slipped Tuesday. Their sector, consumer discretionary was down 1. 70%, a smaller decline than either materials or real estate.

General Motors (NYSE: GM) fell 5. 63% Tuesday, to $39. 06, in volume 77% higher than average. It is not uncommon for similar stocks to fall in sympathy or with peers in the industry.

In this case, GM’s decline may reflect investor concerns that it, too, may be suffering through supply-chain issues that could cut into results. GM reports its third quarter on October 25. Analysts expect the company will earn $2. 04 per share on revenue of $41. 18 billion.

Ford reports the next day, with Wall Street eyeing earnings per share of $0. 54 on sales of $37. 25 billion.

Supply Shortages: The New Normal

Tesla (NASDAQ: TSLA) rallied early in the session but reversed mid-day to finish 0. 14% lower, at $308. 73 in smaller than average trading volume.

In some ways, concerns about shortages of manufacturing components is just another day in the auto industry since Covid restrictions disrupted supply chains. Strong demand for vehicles, such as Ford’s F-150 pickup truck, has been a good news-bad news dilemma.

In addition, Ford and other legacy automakers like GM are trying to quickly ramp up facilities to produce electric vehicles, also a high-demand category.

That means a company like Tesla is better positioned right now than traditional automakers. Still, stocks such as startup EV maker Rivian (NASDAQ: RIVN) also suffered Tuesday. Rivian fell 5. 77%, to $35. 75, in average turnover.

As of now, watch for Ford to hold above its July lows. This would indicate Wall Street’s confidence in the stock moving forward.
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