The Ford logo is displayed on the sales lot at the Ford Store in San Leandro, California.
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The auto sector faces a number of headwinds that are too much for one analyst, who downgraded a couple of auto stocks, including shares of Ford Motor . The downgrade is hitting Ford stock.
The stock fell 1.3% in premarket trading Thursday. S&P 500 futures rose 0.1%, while Dow Jones Industrial Average futures fell 0.04%.
Barclays analyst Brian Johnson is the one who downgraded Ford (ticker: F). His rating went to Hold from Buy and his price target went to $17 a share from $23. It isn’t just Ford that Johnson is worried about — he sees risks to the entire sector from rising interest rates and inflation.
Inflation raises costs, squeezing profit margins unless higher prices can offset cost increases. Higher vehicle prices hurt affordability for car buyers. Higher interest rates also hurt affordability. Most new car purchases are financed and higher rates boost monthly payments.
Johnson has turned negative on the sector he covers and also downgraded shares of parts supplier Dana (DAN) to Hold from Buy. He lowered his price target on that stock to $18 from $24.
Johnson still rates General Motors (GM) shares a Buy, but cut his price target to $59 a share from $68. Johnson rates Tesla (TSLA) shares Sell. His price target remains $325 a share. Tesla stock closed Wednesday at almost $1,046.
Not everyone is as concerned as Johnson. Bank of America analyst John Murphy increased his Ford price target to $32 from $30 on Wednesday morning. Murphy acknowledges the headwinds, but per unit profitability remains very high so he remains positive. His 2022 per share earnings estimate for Ford is about $$1.75, up from $1.59 earned in 2021.
Murphy, however, looks like a bit of an outlier for now. Overall, Wall Street’s enthusiasm for car stocks is waning. Less than 50% of analysts covering Ford stock rate the shares a Buy. At the start of 2022, the Buy-rating ratio was 54%.
The average Buy rating ratio for a stock in the S&P 500 is about 58%.
The Buy-rating ratio for GM stock has gone to about 84% from more than 92% to start 2022, and the average analyst price target for shares has dropped to about $70 from $75 a share.
The average analyst target price for Ford stock has actually gone up about a dollar, to $21 a share, since the start of the year.
Investors seem to recognize some of the risks Johnson highlighted. Coming into Thursday trading, Ford stock has fallen about 26% year to date and is down about 41% from its 52-week high in January of almost $26 a share.
It might take falling inflation to get analyst and investor sentiment improving —and to get Ford stock rolling again.
Write to Al Root at [email protected]
