SA: Ford – is the auto industry the next domino to fall?

Financial risk. Coins falling and Warning label on whitebackgrou

20/09/2022

SEEKING ALPHA‘s Cavenagh Research writes:

Summary

– Ford shares dropped by as much as 10% in early hours trading, after the company released a profit warning.

– Ford warned that costs in Q3 are estimated to be about $1 billion higher than what has previously been expected.

– EBIT for the June quarter could likely fall $1.3 billion short of consensus estimates: EBIT preliminarily estimated at $1.4-$1.7, versus $3 billion consensus.

– However, the “profit warning” does not give conclusive evidence about Ford-specific versus industry-wide challenges.

– Ford shares are now down 39% year-to-date, versus a loss of only 19.8% for the S&P 500.

Thesis

Ford Motor Company (NYSE:F) shares dropped by as much as 10% in early hours of trading, after the company announced that it was facing supply challenges that will likely push up costs in Q3 by an incremental $1 billion. Notably, Ford is one more major U.S. company to warn on earnings, after Nvidia (NVDA), Walmart (WMT), and FedEx (FDX) – to name just a few.

In my opinion, the press release is not necessarily a game changer for an investment thesis relating to Ford stock. The company is still trading relatively cheap versus peers. And the “profit warning” does not give conclusive evidence about Ford-specific versus industry-wide challenges. Accordingly, risk-seeking investors could regard the share-price weakness as an enhanced buying opportunity.

Notably, Ford shares are now down 39% year to date, versus a loss of only 19.8% for the S&P 500 (SPX)…

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