Ford Motor (NYSE:F) will report earnings after the market closes on Wednesday, October 24th. Given how Ford stock has traded these last few months, and really all of 2018, confidence in F stock has to be pretty low going into the report.
Ford stock is down 14% over the past month, 20% over the past three months and 33% so far this year. Now trading in the single digits, F stock has reached its lowest level since late 2012. There’s a reason I’ve never really endorsed F stock here on InvestorPlace.
This may sound counterintuitive for the bulls, but I wouldn’t want to see a big rally ahead of Ford earnings. Instead, I’d rather have Ford stock stay rangebound around current levels or even decline back toward its 52-week lows below $8.20. That way it has a chance of rallying on the results rather than falling even lower after they are reported.
Should We Worry About the Dividend?
Ford’s dividend is another issue that investors are worrying about. After the slide in Ford stock, Ford’s dividend yield has crept up to 7.13%. That’s an awfully high figure, and if management lowers the dividend, many shareholders will be frustrated and angry. After all, the dividend is about all that’s left in terms of positive catalysts.
Morgan Stanley analyst Adam Jonas recently downgraded F stock to “equal weight” from “overweight” and assigned a price target of $10, down from his previous price target of $14. Before Ford stock can rally, Ford’s current restructuring plan needs to bear some fruit, Jonas argues.
After Ford canceled its investor day last month, Jonas has grown even more concerned about Ford stock. The company’s cash flow and earnings remain under pressure, partly due to rising input costs and tariffs. As a result, the company’s dividend is at risk, Jonas warned.
The analyst also addressed the company’s autonomous driving efforts, as he continues to believe that Ford’s Argo AI unit is worth $1 billion. By comparison, General Motors (NYSE:GM) acquired its autonomous driving unit, Cruise, for a reported $1 billion roughly two years ago, but the unit’s valuation has climbed to more than $14.5 billion after it received investments from SoftBank and Honda (NYSE:HMC). (Here’s a look at seven of the top autonomous driving stocks).
Is Ford’s dividend under pressure? I’d be lying if I said I wasn’t at least somewhat concerned about it going into Ford earnings. But we’ll see if management has any reassuring words about the payout during the conference call.
Ultimately, the conference call will give management a chance to reassure investors about its turnaround plans. But the company will have to provide the Street with clear and convincing evidence that it’s getting back on track.
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Consensus expectations call for earnings of 28 cents per share on $33.3 billion of sales, representing a year-over-year decline of 35% and 1%, respectively. No wonder Ford stock trades at 6.4 times this year’s earnings estimates.
Simply put, there’s a lack of confidence in F stock. You can see it on the chart, in the valuation and in the dividend yield. Unfortunately, that’s not surprising. Investors would rather own GM than Ford stock. A high-yield, quality name like AT&T (NYSE:T) is also more attractive than Ford stock. In fact, many names are more appealing than F stock.
Trading Ford Stock
Provided Ford earnings are okay and its business isn’t in free-fall, bulls will look for a spot to buy F stock. Honestly, I need Ford stock to be higher than its 20-day moving average and downtrend resistance before I will buy the shares. That said, even after the shares exceed those levels, the 50-day moving average, which is just a little higher, will act as resistance.
If we can get above those marks, though, the $9.75 level is back in play. If F stock reclaims that level, it will have to tango with the 200 day just over $10. But it would take time for the shares to get there .In this cautious market, F stock won’t just go from $8.20 to $10.20 in a straight line.
But after the shares fell below $9 and their yield jumped, I wouldn’t be short F stock anymore. There are plenty of better short candidates at this point.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long GM and T.
