GM and Ford stock have tumbled from 52-week highs set last month.
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Downgrades are mounting for auto giants General Motors and Ford Motor . Wall Street is worried that peak profits for the sector have arrived.
The latest downgrade comes from Nomura analyst Anindya Das. Wednesday, he downgraded GM (ticker: GM) stock to the equivalent of Hold from Buy, and cut his price target to $56 from $66.
Das expects GM’s production to recover from the global semiconductor shortage in the third quarter of 2022, later than he previously expected. A lack of chips has been constraining global auto production for about a year. The shortage cost auto makers worldwide roughly 7 million to 8 million units of production in 2021.
What’s more, Das believes GM’s investments in electric vehicles will be “margin-dilutive” in the short term. That means he believes EVs won’t be as profitable as gasoline-powered cars in the coming few years.
The downgrade appears to be having little impact on GM stock. In fact, shares are up 2.5% in Wednesday morning trading, while the S&P 500 and Dow Jones Industrial Average are up 1.1% and 0.8%, respectively.
Shares might not be down because this isn’t the first downgrade investors have had to digest. It’s the second downgrade for GM stock in the past two days. Morgan Stanley analyst Adam Jonas on Tuesday.
Jonas, like Das, worries that recent profits are as good as they will get in this automotive cycle. “While GM shares look attractively priced at under 8 [times earnings], investors must consider than [2022] is a near peak cycle year with record high pricing,” wrote Jonas in his report. He also expect EVs to not be as profitable as gas-powered cars, initially, for GM.
Analysts have been downgrading Ford (F) stock as well. Back in November, Das downgraded Ford stock to the equivalent of Sell from Hold. His call wasn’t about electric vehicles, instead he factored in a slower-than-expected recovery in the supply of semiconductors.
In December, Wolfe Research analyst Rod Lache downgraded Ford stock to Hold from Buy. Then in January, Jefferies analyst Philippe Houchois and RBC analyst Joseph Spak did the same, taking ratings from Buy to Hold. Those three downgrades were more about Ford stock valuation.
Ford stock rose 136% in 2021. And the stock was trading at about 12 times estimated 2022 earnings at the time of Spak’s downgrade, up from an average P/E ratio in recent years of roughly 9 to 10 times estimated forward-year earnings.
Whatever the reason for the downgraded, they are mounting. Wall Street analysts are showing concern.
With Das’ Wednesday downgrade, about 83% of analysts covering GM rate the stock at Buy; six months ago the ratio was above 90%. Ford stock is less popular with analysts. About 46% of analysts covering Ford rate the stock at Buy; six months ago that ratio was 55%.
The downgrades have impacted the stock prices. Last month both Ford and GM stock set 52-week intraday highs, but since then they have fallen 32% and 26%, respectively.
Investors now have to decide if analysts are right or if the recent fears are overblown and current prices represent a good buying opportunity.
Write to Al Root at [email protected]
