Fiat Chrysler Shares Surge As GM And Ford Falter

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So far in 2017, Fiat Chrysler (NYSE: FCAU) shares have risen 14% this year against the S&P 500’s advance of 1.2%. Shares of Ford (NYSE: F) have faltered, down 4.6%. Shares of GM (NYSE: GM) are off 2.1%

The trend is unusual, at least based on the U.S. sales performance of the three companies. GM’s January sales were 195,817 cars and light trucks, off 3.9% from January 2016. Ford’s were down 7% to 171,186. Fiat Chrysler’s collapsed 11.2% to 152,218.

Fiat’s US numbers were particularly bad when its division performance is taken into account. Dodge (off 17% to 40,109), Jeep (off  7% to 58,415) , Chrysler (off 39% to 13,377), and Fiat (off 9% to 2,164) sales dropped. Only the Ram truck division showed an increase, but up only 5% to 38,045

 

An explanation from the Motley Fool on February 2:

Shares of Fiat Chrysler Automobiles  surged in January. FCA’s NYSE-traded common stock ended the month at $10.99, up 20.5% from its closing price on the last day of December.
FCA shareholders had a bumpy ride in January. Share prices spiked early in January, after the company showed an electric minivan concept vehicle. Prices then fell sharply after the U.S. Environmental Protection Agency charged the company with civil violations related to a diesel engine used in Ram pickups and the Jeep Grand Cherokee — but began to recover once it became clear that the diesel issue was a minor one.

The month’s big news, however, was FCA’s earnings report. FCA reported its fourth-quarter and full-year 2016 earnings on Jan. 26, and they were very good. The Italian-American automaker generated a net profit of 1.8 billion euros ($1.9 billion) in 2016, up from just 93 million euros ($100 million) the year before.

That report cheered investors. FCA’s guidance may have been even more cheering: The company forecasts increases in revenue, pre-tax earnings, and net profit in 2017, along with a significant reduction in its heavy long-term debt load. And it reiterated earlier guidance saying that it expects its total debt to fall below its cash holdings sometime in 2018.

The most likely reason for GM’s stock problem is its bloated inventory, which few people believe will disappear soon. In November, these inventories reached record highs, and the company resorted to discounts to clear lots.

Ford’s performance is puzzling. It is likely to be the U.S. car company least affected by potential trade friction with Mexico. According to MarketWatch:

Shares of Ford Motor Co. surged Friday, after Barclays turned bullish on the auto maker on the view that the potential benefit of President Trump’s border tax plan hasn’t been fully priced in yet.

Analyst Brian Johnson upgraded Ford to overweight from equal weight, and raised his stock price target to $15, which is 19% above current levels, from $13.

“For all the discussions we’ve already had on a border adjustment scenario, we believe it is sill significantly underappreciated by the market,” Johnson wrote in a note to clients. “Our move to upgrade Ford is predicated on the idea that the stock will re-rate higher as investors better appreciate its relative advantages over peers in a border adjustment scenario.”

Ford was burned by the factor which tends to affect stock prices the most. It’s remarkably poor earnings. According to Barron’s:

Ford Motor reported its fourth-quarter earnings today, and the reaction today was very similar to the one in October, when it released its third-quarter earnings.

Not that the earnings were necessarily similar. Ford reported an adjusted fourth-quarter profit of 30 cents a share today–missing forecasts for 31 cents–on sales of $38.7 billion, and its shares have dropped 3.2% to $12.39 at 2:55 p.m. today. In October, Ford dropped 1.2% after beating earnings forecasts.

MarketWatch’s Tomi Kilgore calls Ford’s earnings “one of the most unclear reports so far this earnings season.” He explains why:

The automaker didn’t provide a year-ago number for earnings (or loss) per share, flipped the financial table to show prior-year results first and only provided a link on their press release to direct investors to their website to see the results….The commentary provided by Chief Executive Mark Fields and Chief Financial Officer Bob Shanks was only about the full-year performance, which showed the company swinging to a profit from 2015, with no mention of the $800 million loss recorded in the fourth quarter.

That’s a headwind