Ford Has Rising Costs And Few Catalysts, Warns Credit Suisse

Ford reported earnings on Tuesday. Traders digested the news live on Benzinga's Premarket Prep.

• Ford Motor Company F shares have declined 6.35 percent over the past six months, from a high of $16.06 on April 28.
• Credit Suisse’s Dan Galves has maintained a Neutral rating on the company, while lowering the price target from $16 to $15.
• Galves would prefer to stay on the sidelines due to concerns regarding rising costs at the company, along with the lack of positive catalysts.

According to the Credit Suisse report, “While Ford's increased fixed costs are not a result poor cost control, we believe it leaves the company more susceptible than others to volume declines, pricing pressure, and/or regulatory cost pressures.”

Analyst Dan Galves also believes that with a large amount of North American production comprising new/refreshed vehicles during Q3, there is unlikely to be any material upside to the 2016 estimates.

Related Link: Ford Q3 Profit Misses Views

Ford Motor has reported its EPS for the quarter marginally below the consensus and the estimates, with total pre-tax below the estimates. The company reported in-line results across all regions, except the Asia-Pacific, which accounted for the miss in the quarter.

However, “a $1.1bn headwind from Material ex Commodities more than offset tailwinds from Pricing and Mix, implying that overall contribution margin per-unit was down,” year-on-year, Galves stated, while adding, “We've repeatedly called out fixed cost increases as driving heightened cyclical risks for F, but we see moderating contribution margin in a peak market as an add'l risk.”

Galves, however, agrees with management’s view that the breakeven point for Ford Motor would be at two-thirds the current volume, although this would be true only if contribution margin/unit remains flat.

The EPS estimates for 2015 and 2016 have been lowered, primarily to reflect a higher tax rate.