Citi Equity research analysts Itay Michaeli, Christopher Reenock and Justin Barell maintains a Buy ratings for Ford Motor Company (NYSE:F).
Ford’s aggressive product launch
Ford Motor Company (NYSE:F) guided 2014 pretax profits to $7-8bln, below Citi’s $10bln. The bulk of the variance came from North America, where Ford unveiled a far more aggressive product launch cadence (16 vs. 5 in 2013). Although Citi analysts’ product cycle work recently prompted them to lower their Ford 2014E North America EBIT to below that of 2013E, they had not contemplated this number of launches, which puts NT pressure on costs/volume, but offers 2015 upside. Ford also projected slight negative pricing driven by the same pressures analysts recently identified in small cars/CUVs. This may be conservative as their model suggests that, even with these pressures, Ford could manage slight positive pricing.
2014 guidance assumed a $350mln hit from a devaluation of the bolivar, which wasn’t in Citi’s model. The AP outlook also appeared a bit light on greater Australia pressures (being restructured). On Europe, 2015 profit targets were confidently affirmed but the ‘13 outlook implied modest Q4 pressure.
Ford’s EPS estimates reduced
Analysts are reducing 2013-15 EPS estimates to $1.62, $1.45 and $2.26 from $1.70, $1.86 and $2.40. Although, in their view, investors had already begun viewing Ford Motor Company (NYSE:F) as a 2015 story with 2014 as a transition year, this morning’s outlook is nonetheless a modest setback as the magnitude of known transitory 2014 headwinds appears greater (NA product cycle, SA currency, non-China AP). Analysts still see 2015 as a >$2 EPS story driven by known EU tailwinds & product cadence. With the reset out of the way, the introduction of new products and an eventual roll to 2015 could provide support for the shares, as might valuation at ~7x ‘15E P/E. Citi’s target slips to $19 from $21 on the reduced estimates. Maintain Buy.
Low 2014 wholesale volume
Most of the 2014 headwinds appear Ford-specific, with the exception of price pressure in small cars/CUVs (they’ve already factored for GM), some apparent pressure on Q4 in Europe, the cautious view in SA and Australia pressures (though GM is also restructuring now). Ford Motor Company (NYSE:F)’s guide for lower 2014 wholesale volume (due to launches) is also a negative read for exposed suppliers.