Ford Motor stock was recently downgraded by an analyst that felt the auto sector faced powerful headwinds, problems that might be too hard to overcome. The downgrade affected Ford’s stock price.
The stock dropped by 2.8% on Thursday, landing at $14.96. The S&P 500 rose 0.4%, while the Dow Jones Industrial Average gained by 0.3%. According to Brian Johnson, a Barclays analyst, there are great risks facing the entire auto sector, from rising interest rates all the way to inflation. His Ford rating went from Buy to Hold, and his price target dropped to $17a share, from $23.
Inflation can have devastating effects on a company’s bottom line; it raises costs and squeezes profit margins, leaving a company to raise prices as the only viable way to offset the costs. However, higher vehicle prices hurt the ability of buyers to afford since most car purchases are financed, and higher rates increase monthly payments.
Johnson also downgraded shares of parts supplier Dana (ticker: DAN) from Buy to Hold. He took the step to lower his price target on the stock from $24 to $18. However, it wasn’t all pessimistic as he maintained General Motors (ticker: GM) at a Buy, but his price target was cut from $68 to $59. Johnson rates Tesla (ticker: TSLA) Sell. He maintained a price target of $325 a share. Telsa stock ended Wednesday at almost $1,046.
Despite Johnson’s apparent pessimism, there are still analysts that hold a different view. On Wednesday morning, Bank of America analyst John Murphy increased his Ford price target from $30 to $32. Murphy does acknowledge the challenges facing the sector but still maintains his positive rating in stack contrast to the rest of Wall Street; less than 50% of Wall Street analysts covering Ford stock rate the shares a Buy. At the beginning of 2022, the Buy-rating ratio was 54%.
On average, the Buy rating ratio for a stock in the S&P 500 is roughly 58%.
The Buy- rating ratio for GM stock has dropped to roughly 84% from more than 92% at the start of the year, with the average analyst price target for shares dropping from $75 to $72. The average analyst target price for Ford stock has actually increased up a dollar to $21 since the start of 2022.
Despite what many might think, it appears as though investors are definitely aware of the risks Johnson pointed out. By Thursday trading, Ford stock had dropped about 26% year to date and is down roughly 41% from its 52-week high in January of almost $26 a share.
It might take a change in the inflation situation to actually get investors and analysts excited about the auto sector again, but for now, it’s just a game of watch-and-see.