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Ford Motor Company Stalls on Downgrade, Price-Target Cut

Goldman Sachs removed F from its 'conviction buy' list

by 8/3/2011 12:55:00 PM
Stocks quoted in this article:

Early this morning, Goldman Sachs lowered its outlook on Ford Motor Company (F - 11.50) and removed the automaker from its "conviction buy" list due to possible ramifications of the slowing U.S. economy. However, the firm still sees a strong valuation for F, saying that there is potential growth for the second half of 2011, and a likely debt upgrade in the company's future. In fact, F is predicted to be able to pay a dividend next year. Ultimately, Goldman lowered its price target to $17 from $20, while keeping a "buy" rating.

Many of the other analysts following F appear to be bullish. Specifically, Zacks is reporting seven "strong buys" and two "buy" recommendations, compared to six tepid "hold" suggestions.

Furthermore, the consensus 12-month price target for F -- as calculated by Thomson Reuters -- rests at $19.50, implying a significant premium of 64.6% to Tuesday's close of $11.85. Going forward, this positive attitude among analysts could leave F vulnerable to price-target cuts and/or fresh downgrades, should the stock fail to live up to the Street's expectations.

Option players are also rather optimistic toward F. During the past two weeks, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open 6.12 calls for every put. This ratio arrives in the 94th percentile of its annual range -- just six percentage points from an optimistic peak -- signaling that traders on these exchanges have rarely purchased calls over puts at a faster pace during the past year.

What's more, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.50 implies that calls double puts among options slated to expire within three months. This ratio ranks in the 16th percentile of its annual range, indicating that near-term option traders are more positively aligned toward F than usual.

Technically speaking, F seems to be stuck in a downtrend. On a relative-strength basis, the equity has underperformed the broader S&P 500 Index (SPX) by more than 15% over the past three months. From a longer-term perspective, the stock has lost 8% during the past year, and has dropped nearly 30% in 2011 alone.

Chart of F

Since tagging a high just below $19 in January, F has fallen lower, pulling its 10-week and 20-week moving averages into a bearish cross. Currently, the stock is down 3.5%, and is now staring up at the formerly supportive $12 level, which could emerge as an additional layer of resistance going forward. With these technical hurdles looming overhead, additional price-target cuts or a change of heart from any of the bulls could pressure F even lower.


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