Ford’s Credit Rating Cut Will Hurt In The Near Term But Its Stock Has A Potential Upside Of 60%

+6.87%
Upside
13.20
Market
14.10
Trefis
F: Ford Motor logo
F
Ford Motor

Comparing the trend in Ford Motors’ (NYSE: F)  stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 60% once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Ford’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, ‘2007-08 vs. 2020 Crisis Comparison: How Did Ford Stock Fare Compared with S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between January 31st and March 25th, Ford’s stock has lost 39% of its value (vs. about 26% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of coronavirus cases outside China fueled concerns of a global economic slowdown. Matters were only made worse by fears of a price war in the oil industry triggered by an increase in oil production by Saudi Arabia.

 

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Ford’s Stock Has Fallen Because The Situation On The Ground Has Changed

Ford’s stock has suffered as states and countries are on lockdown. As industries have halted production and services, the demand for automobiles has taken a hit with consumers focusing solely on essentials and not discretionary products. Further, the company had to shut down its plants in North America and Asia, which has led to further declines in its stock. We believe Ford’s Q1 and Q2 results will confirm this reality with a drop in revenues across all the segments. Notably, the company’s credit rating was lowered one notch by S&P as well as Moody’s with another rating cut still on the cards given its vulnerability in the event the slowdown drags on. 

But Ford Stock Fared Worse During The 2008 Downturn

We see Ford stock declined from levels of around $5.56 in October 2007 (the pre-crisis peak) to roughly $1.35 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 76% of its value from its approximate pre-crisis peak. This marked a higher drop than the broader S&P, which fell by about 51%.

However, Ford recovered strongly post the 2008 crisis to about $6.75 in early 2010 – rising by 400% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Ford’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Ford stock has fallen by 39% this time around, compared to the 76% decline during the 2008 recession, we believe it to recover by 60% to levels of $8.60 once economic conditions begin to show signs of improving. This marks a partial recovery to the level of $9.18 the stock was at before the coronavirus outbreak gained global momentum. Notably, the company received a bailout package from the U.S. government during the 2008 recession and is likely to be bailed out yet again over the coming weeks.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of Coronavirus impact on a diverse set of company’s including Microsoft and Amazon. The complete set of coronavirus impact and timing analyses is available here.

 

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