Here’s Why Ford’s Stock Has Been Declining Lately

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After posting disappointing results in the second quarter, Ford Motors (NYSE: F) posted a strong improvement in its sales for the month of August. The company witnessed the best monthly SUV sales in the last 15 years, along with solid growth in Mustang sales. While this might seem like a ray of light at the end of the tunnel for Ford, there are still a lot of things working against the company.

In this article, we discuss the reasons for revising our price estimate for Ford to $10.07 per share. View our interactive dashboard Ford’s Price Estimation and modify the key drivers to arrive at your own price estimate for the company.

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Ford missed the consensus estimates for its 2Q’18 earnings, largely because of a 35% fall in its Chinese sales during the second quarter, followed by a 36% year-on-year drop in its Chinese August sales. The company’s profit for its Chinese operations was down from $70 million in 2Q’17 to a $633 million loss in the 2Q’18. In addition, increased regulatory costs in Europe, and rising commodity costs also weighed on the company’s profitability, causing its operating profit to drop sharply to $1.1 billion, a decline of almost 50% on a year-on-year basis. A steep decline in Ford’s bottom-line created anxiety among investors, which resulted in the stock hitting a 6-year low of $9.32 per share. To top this, Moody’s downgraded the company’s credit rating from Baa2 to Baa3, one notch above Junk. The situation turned doom and gloom for Ford, when the sales numbers of China were announced for August month, which further caused investors to be disappointed, leading to further  selling of the stock. The stock has now recently hit a new 52-week low of $9.25 per share.

Further, despite posting strong growth in its August sales in the North-American market, Ford announced the recall of 2 million F-150 pickup trucks in North America over front seat-belt fire concerns. According to the company, seat belt pre-tensioners could generate excessive sparks that could result in fire. Consequently, the company decided to recall its trucks, which is estimated to cost another $140 Million to its most-profitable North-American unit. This could negatively impact its third quarter as well as full year results.

Based on the above mentioned developments, we believe that Ford’s performance is more uncertain. Accordingly, we have revised our EPS estimate for the company to $1.50 per share and price estimate to $10.07 per share.

 

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