Ford fighting its way back

Ford is set to release third-quarter figures only weeks after issuing a profit warning.

Ford cars
Source: Bloomberg

Ford will announce its numbers at 12pm on Friday 24 October. The automaker’s share price collapsed at the end of September when the company warned that full-year profits will be in the region of $6 billion, which is considerably lower than the previous guidance of somewhere in between $7 billion and $8 billion.

The America’s business bore the brunt of the blame; the South American unit registered a loss of $900 million and the recall of vehicles, mostly in North America, is to set the business back around $1 billion more. Operations in Russia made a loss of $300 million. Its Russian business was slipping even before tensions arose over Ukraine, and now falling demand and a weakening rouble are compounding the problem. Ford’s European business is expected to back to profit in 2015.

To cushion the blow of the profit warning, the Detroit-headquartered company stated that revenue from its North America business will increase by 20% by 2020, although profit margins would decline to a high single digit.

In the wake of a profit warning one would expect a jump in the number of speculators shorting the stock, but short interest actually declined by 5.7% at the end of September.

Analysts are expecting third quarter revenue to come in at $33.31 billion and an EPS of $0.19. This represents a 5.6% and a 52.5% decline from Q2 revenue and EPS.

The stock is off its recent lows of $13.26, which coincided with the spike in the VIX and the plummet in the S&P 500. Year-to-date the share price is down 7.8%, whereas General Motors has lost 22.5% over the same period, Ford’s share price hit a three-year high in July, but the profit warning last month brought it back to levels not seen since April 2013.

Equity analyst recommendations are heavily weighted on the buy side; out of the 28 ratings, 15 are buys, 12 are holds and only one is a sell. The average target price of the 28 recommendations is $17.81.

Ford is trading at $14.28, with the 200-week moving average providing support at $13.79. If Ford confirms full-year guidance will be met without additional revisions, the stock may target the 100-week MA of $15.47. If confidence is restored in the medium-term, the next level up is the 200-DMA of $16.13. 

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