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Ford Gets An Upgrade: Lack Of Recall Costs, Higher Seasonal Production To Benefit Q4

Ford's Lack Of Recall Costs, Higher Seasonal Production To Benefit Q4

Ford Motor Company F 0.17% beat Q3 2016 expectations, and Daiwa Capital’s Jairam Nathan believes there is no meaningful downside risk to the stock.

Nathan upgraded the rating on the stock from Underperform to Neutral, with a price target of $12.

Ford reported its non-GAAP EPS for Q3 2016, at $0.26, ahead of the estimates and consensus, driven by robust performance the North American auto operations and Ford Credit.

“Pre-tax profit from automotive operations totaled $861 million for the quarter compared to $2.6 billion a year ago and our expectation of $603 million. The upside to our estimate was driven by North America, where profits were up almost $500 million more than expected,” the analyst mentioned.

However, the results were partially offset by the weaker than anticipated performance in South America, Europe and the Middle East.

Outlook

According to Bloomberg report, Ford intends to cut production of its slower selling Fusion sedan and Focus compact, which could directly impact the company’s bottom line going forward, since it books revenue when a vehicle leaves the factory rather than when it's sold in the showroom.

Despite the Q3 beat, the company maintained its guidance of pre-tax profit for 2016 of $10.2 billion.

“Ford Credit earnings are also expected to be down sequentially on higher depreciation expense on leased vehicles,” according to the Daiwa Capital report.

Nathan also expects a 10 percent decline in North America, driven by lower pricing and volume, with higher technology investments.

Ford still expects to see margin pressure on its core auto business.

DateFirmActionFromTo
Oct 2016Daiwa CapitalUpgradesUnderperformNeutral
Sep 2016NomuraInitiates Coverage onBuy
Sep 2016Buckingham ResearchDowngradesBuyNeutral

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