Ford and GM both hit 52-week highs on Jan. 15, when Ford touched $14.30 (reached again on Jan. 17) while GM touched $30.68. The high marks reflected the enthusiasm surrounding the Detroit Auto Show, where both Ford and GM highlighted promising new products. Subsequently, fourth-quarter earnings reports disappointed investors, even though Ford beat estimates, because of lower-than-anticipated margin outlooks in both cases. On Tuesday, Ford closed at $13.39 and GM closed at $28.37. Looking ahead, the impending impact of 23 new product introductions by 2017 seem likely to boost GM's market share, which declined to 18% in 2012 from 19.6% in 2011. "GM had been suffering from a dearth of new products because it was headed to bankruptcy, but now it's bringing new products to market again," Levy said.
Nevertheless, Levy downgraded GM shares to hold from buy following the Feb. 14 earnings report, reducing his 12-month target price to $31, reflecting weakness in Europe and an increase in the expected tax rate to 35% from 10%, partially offset by a $600 million reduction in depreciation charges following an asset write-down in Europe. Jefferies analyst Peter Nesvold has a hold and a $29 price target.
Nesvold said three aspects of Ford's outlook suffer from false negative perceptions. "The biggest overhang on Ford shares has been the step-down in North American margins implied in the 2013 outlook," to around 10% in 2013 from 10.4% in 2012, Nesvold said. Investors anticipate increases in pension and amortization costs, but apparently fail to consider that "Ford's North American business should throw off more cash in 2013 than it did in 2012," he said. Secondly, despite the falling yen, Ford has seen no evidence of higher incentives by Japanese automakers. Additionally, Nesvold said, a projected $1.5 billion increase in capital expenditures is "a high-class problem (because) Ford has multiple projects into which it can deploy capital at high incremental returns." UBS analyst Colin Langan has buys on Ford, GM, Toyota ( TM) and Hyundai. In a recent report, Langan said GM is the best-positioned automaker because of new vehicles arriving this year including the K2XX pickup. GM has a 33% refresh rate, he said, while Toyota is second with a 27% rate. Ford lags with a 7% refresh rate, but nevertheless should benefit from its 2012 launches of the Fusion and Escape, he wrote. Top five 2013 launches will include the K2XX pickups and SUVs as well as Toyota Corolla, Nissan Rogue and Jeep Cherokee, Langan said.