Auto Stocks Could Stall Further, Analysts Predict
Auto stocks are among Wall Street’s cheapest shares right now, but some analysts believe they could get cheaper still.
General Motors Corp. shares (ticker symbol: GM) slumped $3.94, or 6.5%, to $57 on Tuesday after Goldman, Sachs & Co. analyst Gary Lapidus lowered his rating on the stock to “market outperform” from “recommend.”
He also cut his 2001 per-share profit estimate to $7.70 from $8.70. The new 2001 estimate would mark a 15% drop in GM’s earnings from the $9.08 a share Lapidus figures the company will earn this year.
Lapidus also cut his rating on Ford Motor to “market outperform” and trimmed his 2001 earnings estimate to $3.45 a share--flat with his forecast for 2000--from $3.70 a share.
Ford stock (F) slid $1.44 to $25.
The Goldman analyst estimates that industrywide sales of light trucks--a key profit center for auto makers that includes sport-utility vehicles, pickups and minivans--will decline 4% in the next two to three years, after nine years of growth. Slowing demand and rising supply will cause auto makers to use less plant capacity, “which will drag down revenue per vehicle and operating margins,” he said.
“Light-truck earnings are going to come under significant pressure,” Lapidus said.
He estimates that overall light-truck plant use will fall to 82% of capacity by 2004 from 98% today.
Competition also is expected to hurt Ford and GM’s light-truck businesses. A slew of foreign manufacturers are expected to enter the light-truck market, which was once sacred ground for the domestic manufacturers.
All told, “Manufacturers are introducing 62 new light trucks over the next four years,” Lapidus said.
The downgrades come just a week after Ford, GM and DaimlerChrysler said sales of trucks in October fell from year-earlier levels. Ford suffered an 11% fall in sales of F-series pickup trucks, while sales of GM’s Silverado pickup dropped 14.6% and sales of the GMC Sierra slumped 23%. DaimlerChrysler’s truck sales fell 4%.
In his report, Lapidus estimated that GM, Ford and DaimlerChrysler had a combined $24 billion in operating profit from North American light trucks in 1999--while the three auto makers lost $4 billion in the North American passenger car business.
Though the auto stocks sell for single-digit price-to-earnings ratios, Lapidus believes it is best to sit on the sidelines for now.
“Based on our outlook it’s hard to imagine anything except negative earnings revisions, and that suggests investors should avoid automobile stocks,” he said.
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Downshifting With GM
Shares of the auto giant are hovering near their lowest level since 1998 as Wall Street fearsa further slowdown in sales in 2001.
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Monthly closes and latest for General Motors stock on the New York Stock Exchange
Tuesday: $57.00 down: $3.94
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Source: Bloomberg News
