In This Article:
There are a number of issues that have pushed a Jeffries analyst to downgrade Ford (NYSE:F) from Hold' to Underperform' on December 16, 2024. Furthermore, the analyst has decreased the price target from $12 to $9 due to concerns regarding earnings headwinds, as outlined below:
-
Inventory Backlog
Ford is facing an increasing inventory backlog, with U.S. inventory levels rising to 96 days, meaning that the inventory sits for 96 days before being sold. The higher inventory levels the worse for company's financial health as it indicates overproduction or simply weak demand.
-
Massive restructuring
Giant carmaker Ford has reported significant losses in European market in recent years due to highly disruptive market that is shifting towards electric vehicles.
That is why Ford has opted for strategic decisions of corporate restructuring to achieve better cost structure and efficiency. These actions include cutting its European base of employees to 4,000 until 2027 mainly inGermany and UK. Furthermore, the company is also adjusting its facilities adjusting to the economic environment and slow sales.
-
Widening gap between warranty provisions and related cash outflows
The carmaker saves money on warranty provisions, and it backfires to them as they now spending more on warranty claims than they had anticipated.
The gap between cash spent on fulfilling warranty claims and the amount that set aside for the replacements is widening, meaning that they underestimate the cost of warranty repairs or replacement and eventually impact the cash flow and financial health.
This article first appeared on GuruFocus.