A possible severe recession on the horizon has some analysts worried about the share of major automakers. Ford (F) and General Motors ( GM ) both saw third-quarter sales rise but fell on Monday. Ford stock and GM stock both fell during market trading on Monday.
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Ford stock fell more than 6.8% on Monday, while GM stock fell 3.9%.
Patrick Hummel, an analyst at UBS, said the overall sector outlook for 2023 was “decreasing so rapidly that it looks inevitable.” It expects a shift from undercapacity to supply, which will result in a decline in margins led by price-and-mix.
Hummel predicted that GM’s earnings will more than halve next year and that the stock’s “rapidly declining picture from top to bottom” will not lift the stock over the next six to 12 months. Hummel downgraded GM stock from buy to neutral and lowered his price target to $38 from $56.
He has a more negative view of Ford. Hummel says Ford is a step up from General Motors and behind Stellar (STLA) in terms of North America’s EBIT – earnings before interest and tax – margins, and “in terms of[reality]the recession has the highest break even point. The company’s EBIT margin has halved to 3.6% year over year and free cash flow has fallen to break even.” observed. Ford’s European businesses could face losses amid a worsening macro downturn, setting back its restructuring efforts. Ford is one of the most attractive risk-reward positions among Western automakers over a 12-month outlook, Hamel said. F shares downgraded to sell , and lowered his price target from $13 to $10.
The stock decline comes after Ford and General Motors both reported sales increases in the third quarter. Ford’s sales rose 15.9% to 464,674 vehicles, below expectations of 473,595 vehicles. General Motors sold 555,580 in Q3, up 24% year over year. However, both showed quarter-on-quarter sales declines. Ford sold 483,688 vehicles in Q2, while GM sold 575,911 vehicles in the second quarter.
You can follow Harrison Miller on Twitter for more stock news and updates. @IBD_Harrison
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