By Michael Elkins
Morgan Stanley upgraded coverage on Ford Motor Company (NYSE:F) to Overweight (from Equal-Weight) and lowered their price target on General Motors (NYSE:GM) to $30 (from $42) based on valuation and preference.
Analysts wrote in a note, “Our preference for Ford vis-à-vis GM is driven by our views of the business portfolio and strategy. Both stocks offer approximately a 10% FCF yield on our FY23 forecasts. This 'splitting of the ratings' is also not meant to convey a message of recession-bottom buy signal as we have reserved that in our bear case scenarios for both companies which suggest >40% downside for both companies. We're not there yet. While investor sentiment on the OEMs may be as low as it's been since Covid, estimates have far further to fall. Again, we're not there yet. Auto stocks tend to look expensive on PE and EV/EBITDA metrics at the bottom while cheap on more crude metrics like P/Sales. You guessed it...we're not there yet either.”
A 3Q profits warning paired with macro concerns has resulted in lowered expectations for the company and a sharp pull-back in shares. F is trading at approximately 8x Morgan Stanley’s EPS forecast of $1.50.
General Motors hasn’t made any such warning yet. However, the analysts believe that Ford’s warning may become a bellwether event for the industry. As such, Morgan Stanley “baked in” a warning ahead of time.
Morgan Stanley believes that the next 6 to 12 months are likely to see consensus forecasts materially lower for both F and GM.
Shares of F are up 1.38% in pre-market trading Wednesday, while GM is down 2.65%.