Ford Stock Faces More Declines as Outlook Worsens

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Ford Motor Co.'s (F) stock has gone in reverse in 2018, falling over 4% year to date and nearly 10% from its January high. The weakness is even worse when measured against the broader S&P 500. The index is up nearly 3.5% in 2018 while rival General Motors Co. (GM) has sped ahead by rising 7.2%. But the worst may not even be over for Ford stock.

Hitting the company hard was the shutdown of its two plants that produce the Ford F-150 pickup truck, due to a fire at one of its suppliers. Meanwhile, analysts have been slashing their revenue and earnings estimates for the second quarter and see earnings for the company falling by over 12% in 2018.

F Chart

F data by YCharts

Slashing the Quarterly Outlook

Analysts have slashed estimates for second-quarter results, due around the end of July, by nearly 15% over the past 30 days. Earnings in the second quarter are forecast to decline by roughly 37% to $0.35 per share. The weak earnings will come on weak revenue as well, which is expected to decrease by nearly 2% to approximately $36.5 billion.

F EPS Estimates for Current Quarter Chart

F EPS Estimates for Current Quarter data by YCharts

Full-Year Outlook Is Weak

The outlook for Ford is terrible for the full year as well, with earnings seen falling by around 12.6% to approximately $1.56 per share. However, surprisingly, unlike the second quarter, analysts have not trimmed full-year estimates to this point, leaving open the risk of estimate downgrades after the second-quarter results come in.  Meanwhile, revenue is expected to grow by just 1%.

F EPS Estimates for Current Fiscal Year Chart

F EPS Estimates for Current Fiscal Year data by YCharts

Better Growth at GM

Compare that to GM, which is expected to grow second-quarter revenue by over 8% to $36.7 billion and have flat earnings at roughly $1.89. Meanwhile, for the full year, earnings are seen falling by a little more than 3%, on revenue growth of 8%, besting Ford in both revenue and earnings growth. 

Not Cheap

Fundamental Chart Chart

Fundamental Chart data by YCharts

Further hurting Ford is its valuation, which on the surface appears cheap at just 7.7 times 2019 earnings estimates when compared to the broader S&P 500 at about 16.8. However, take into consideration that Ford is trading at the upper end of its historical P/E range, while also being higher than that of GM. 

Even worse is that Ford's earnings and revenue are seen falling not just in 2018 but in 2019 as well. It makes shares of Ford not even cheap at its current valuation. 

The current outlook for Ford paints a picture of a stock that may find it hard to keep pace with the broader averages, and rival GM, while facing the potential of even steeper declines. 

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.