By on July 17, 2012

Just when you thought shares of Ford and GM can’t get any lower, major brokerage Morgan Stanley “lowered its 2012 U.S. auto sales projections by about 3 percent and cut its earnings-per-share estimates for the North American auto sector due to weaker-than-expected sales in the United States and Europe,”Reuters says.

For what it’s worth, Morgan expects U.S. auto sales to be 14.4 million this year, down from its earlier projection of 14.8 million.  What is more disconcerting is Morgan’s outlook on financials of U.S. makers.

The firm cut its earnings-per-share outlook for GM by more than 10 percent to $3.40 per share. That’s still above analysts’ consensus of $3.25 per share.

Morgan Stanley now estimates Ford’s annual earnings per share at $1.26, down 3.1 percent from its previous forecast of $1.30.

Europe puts a sever drain on U.S. automakers. Latin America is soft. China is still good, but taking a breather.

The Ford and GM shares were unimpressed by the dire predictions and opened mostly unchanged today. Our Grade the Analysts ranking is likewise underwhelmed: Morgan Stanley usually takes bottom position when they show up and play.

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22 Comments on “Analysts Predict Doom For Car Industry, Market Shrugs...”


  • avatar
    28-Cars-Later

    DOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOM!

    watch?v=xoCZ07hwoZ4

  • avatar
    CJinSD

    GM’s P/E ratio is 5.7:1 – hard to panic about that. Probably former tech stock investors are snapping up shares on the strength of this dire report. Evil, greedy Exxon Mobil has a P/E ratio of 10.22:1. Facebook has a P/E ratio of 59:1.

    • 0 avatar
      wsn

      LOL, GM always had great P/E until those “one time charge” occurs every month. GM’s P/E doesn’t mean sh*t because:

      1) They didn’t account for the burdern of UAW on GM properly in each quarter. Instead they just bury the cost in the pile of accounting mess until they need another bailout.

      2) They count sales to dealerships as sales. When there is a build up, they will have to shoulder part of that loss with the dealerships.

      If it’s my own money, I will put it in FB before I put it in GM.

      • 0 avatar
        CJinSD

        Sort of like how Saturn made millions every year except the one when they wrote down several billion as a loss?

      • 0 avatar
        mike978

        For my own education relating to your second point. Is it just GM or is is a standard industry practice (in the US) to count sales t dealerships as sales?

      • 0 avatar
        Ron

        It is standard practice around the world, must as it is standard practice for P&G to count sales to supermarkets as sales and ExxonMobil to count sales to filling stations to sales.

      • 0 avatar
        Ron

        It is standard practice around the world to count sales to dealerships as sales, just as it is standard practice for P&G to count sales to supermarkets as sales and ExxonMobil to count sales to filling stations as sales.

  • avatar
    toxicroach

    That “doom” means GM has a 5.5 P/E ratio, and Ford has a P/E ratio of 7.34. That is firmly in the undervalued category (or if your paranoid, the “what do they know that I don’t category).

    • 0 avatar
      MyCaymenIsBlack

      Where in the world are you getting Ford with a 7.34 P/E? They’ve been below 3 for the entire year. They sit at 1.97 currently.

      http://ycharts.com/companies/F/pe_ratio

    • 0 avatar
      Pch101

      “That “doom” means GM has a 5.5 P/E ratio, and Ford has a P/E ratio of 7.34. That is firmly in the undervalued category”

      P/E’s should, at least in theory, reflect future expectations for earnings growth.

      Auto companies generally have low growth prospects, even in the best of the times, because they are industrial concerns in a mature industry.

      GM and Ford should have low P/Es, just because of the business that they are in. Even in the best case scenario, there is only so much growth that is available to them. They are more comparable to supermarkets than they are to tech companies.

      • 0 avatar
        toxicroach

        13%+ annual return in this environment? I’ll take it.

      • 0 avatar
        Pch101

        From where are you getting the 13% figure?

        If the growth prospects are modest and the stock price declines, you won’t be earning 13% in the future. The price should, again in theory, have future expectations built into it. One should be buying the next few quarters and what may happen, not what has already happened.

      • 0 avatar
        toxicroach

        9.27/1.25= 13.4% If all the profits were distributed to the shareholders, which they won’t, at least until the debt is paid off and so on.

        They aren’t sexy stocks, but to my non-expert eye they look pretty solid in a market where stocks are mostly overvalued. And that’s not even counting the fact that it’s unlikely the government will let them fail.

        I’d take them over paying through the nose for some tech stock that will probably be worthless in ten years.

      • 0 avatar
        MyCaymanIsBlack

        The only problem is that Europe might dog Ford for a while. Granted, the dire European outlook for the short-term future is priced into the stock, but once you get out 18-24 months, how are they going to affect Ford’s profits?

      • 0 avatar
        Pch101

        “9.27/1.25= 13.4%”

        Inverting the PE ratio only tells you that P/E ratios can be inverted. I wouldn’t look at that as a measure of return, but of what investors are currently willing to pay for the last period of earnings.

        Returns come from dividends and price appreciation. The question that you should be asking is what are the reasons that the stock could rise or fall.

        I wouldn’t say that these stocks are particularly cheap, given that they are industrial concerns in a mature business. What I would say is that auto companies are fairly cyclical, and that I would expect investors to feel better about them as economic sentiment improves, which will eventually prompt those investors to pay more for those earnings later than they would today.

        Improvements in the US SAAR and, if the Europeans can get their act together, a resolution to the Euro problem, should be good for these companies. Not great, but good.

    • 0 avatar
      MyCaymenIsBlack

      My bad, wasn’t using the future EPS; still going off last year’s. Ford’s average EPS over the past 5 years is 6.2, so is 7.34 really undervalued? The spike in P/E isn’t due to a spike in stock price, either, it’s due to a decrease in EPS. The stock is down 30% off its yearly high right now, and yet P/E is rising. I don’t think that correlates into positive sentiment amongst investors or an undervalued stock in this case. I’d think if EPS is dropping off, I’d want to see P/E hold steady, not jump; this way you know the stock price is declining at the same rate as the P/E, which would make me feel a little better about a fair valuation using this specific metric. I don’t want to see a higher P/E because of lower earnings. Correct me if I’m wrong…

  • avatar
    replica

    Punching imps isn’t a pleasant experience for anyone. Just go find some ammo.

  • avatar
    jkross22

    Considering the number of people unemployed – the total, not the 8% guff being thrown out by the gubmint – and the housing problems that will be with us for some time, I’m surprised the estimate is as high as it is.

  • avatar
    oldyak

    I come home late at night and Ive noticed the repo trucks are appearing again.. with some nice rides in tow.
    How many sub-prime buyers are out there?
    Too much credit all over again,only not on homes.

  • avatar
    AJ

    I’m not surprised at all when I look around at the economy. A small business owner I personally know, he’s got about a dozen employees and some weeks he has a tough time coming up with payroll. He’s frozen wages, asking his employees to pay more of their benefits, asking employees not to take vacations this summer as he needs everyone available for work (for jobs he’s not making money on… to make payroll), plus his work trucks are getting old and tired. He’s scared to death of the economy, and the continual attack on him as being the enemy. He’s about had it. My brother works for a place in a similar fix.

    My father-in-law also has an auto body shop that he’s got on the market now for three years. Last year was the first year ever that he’s lost money. He was telling me recently that his insurance work is way down, as a lot of people are choosing to live with a little damage and keep the money then to repair the car.

    My last employer closed shop several months ago after a tough two previous years (fortunately I got out in time). My current employer is in a hiring freeze, and I currently have two job titles. It’s tough out there so who the hell wants to buy a new car? My cars are getting older then usual and for the fist time I”m okay with that.


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