Bobby Harvey
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Citi Stays Neutral On Ford Shares, Prefers GM

Shares of Ford Motor Company fell more than 8 percent after its second-quarter EPS missed estimates by $0.06. The automaker saw flat U.S. sales and lower sales in China.

Going into the second half, Ford faces an expensive launch of its new Super Duty pickup truck, as well as a Brexit-related $145 million hit to sales.

Citi maintains its Neutral rating on Ford, but prefers General Motors Company . Citi analyst Itay Michaeli said GM is more exposed through midsize trucks while Ford's new higher-contented trucks are cutting into margins — a trend that could linger into 2017.

"In 2016–17, GM is redesigning exceptionally older cars and crossovers, meaning that the year-over-year profit comp is likely also quite easier. We don't think Ford enjoys similar tailwinds making it more susceptible to current industry pricing pressures in sedans," Michaeli wrote in a note.

On the inventory front, Ford edges out GM so far this year, which could impact Ford's upcoming third-quarter results.

But even more than North American issues, the analyst remains concerned about weak demand in China during the coming quarter.

While Ford forecasts another strong year and is committed to full-year guidance on pretax profit and operating margin (equal or better than last year), the company now sees challenges to achieving guidance.

Meanwhile, the analyst said the automaker's second half North America margin guide appears "respectable" at 8 to 9 percent, which would put 2016 at around 10 percent (aided by a strong truck mix). Management also appeared to stick with its 8 to 10 percent go-forward NA margin view.

 Michaeli cut the price target by $2 to $13, implying a potential return of 2.3 percent.