Key points:
- Ford and GM were downgraded by UBS
- The price targets of both companies were also cut
- Ford shares fell around 5%, while GM is down 4% premarket
Shares of both Ford (NYSE: F) and General Motors (NYSE: GM) are down premarket Monday after the automotive companies were downgraded by UBS analyst Patrick Hummel.
Hummel downgraded Ford to Sell from Neutral, cutting the firm's price target to $10 from $13 per share.
At the time of writing, Ford shares are down more than 5%, while General Motors has declined over 4% premarket.
The analyst stated in a research note that Ford is behind Stellantis (NYSE: STLA) and General Motors when looking at North American EBIT margins and, in light of the likely recession, has the highest risk of “testing break-even points” in UBS' opinion.
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In addition, UBS believes Ford's auto adjusted EBIT margin will drop by half year-over-year to 3.6%, and on that basis, adjusted free cash flow is expected to fall to around the break-even level.
Furthermore, Hummel explained that Ford's European business could become loss-making due to a problematic macro backdrop, which is a potential setback to the restructuring achievements already made.
“Ford has one of the least attractive risk/reward profiles” amongst Western car manufacturers on a 12-month basis, claimed the UBS analyst.
On General Motors, Hummel downgraded the stock to Neutral from Buy, cutting the price target to $38, down from $56.
He told investors in a separate note that while the firm continues to like GM's electric vehicle momentum in 2023 with a strong launch pipeline, the overall sector outlook for 2023 is “deteriorating fast so that demand destruction seems inevitable at a time when supply is improving.”
As a result, UBS believes it will “lead to a paradigm shift” from undersupply to oversupply. Hummel said they expect GM's earnings per share to more than halve next year and says the “rapidly deteriorating top-down picture” makes it unlikely that the stock will rise over the next six to 12 months.