How Will The Booming Chinese Auto Market Affect Ford's Earnings?

| About: Ford Motor (F)

Ford Inc. (NYSE:F) is set to report FQ1 2014 earnings before the market opens on Friday, April 25th. Ford will give the final major earnings report of the week. Over the past month, all eyes on the automotive industry have been focused on the General Motors (NYSE:GM) recall and investigation. Ford stock is currently trading at $16.26, which is higher than where it began the year, but not quite as high as the 2014 highs from early April. It's likely that the earnings report will contain an official announcement that COO Mark Fields will succeed Alan Mulally as CEO. Mulally intends to retire by the end of the year. Ford and GM have both seen explosive sales growth in China. Ford is expected to sell over 1 million vehicles in China alone this year for the first time ever. Despite the booming automotive market in China, Wall Street expects global revenue to grow marginally by only 1.8% on a year-over-year basis. The Street also expects earnings to fall by 9c per share compared to FQ1 of last year. Here's what investors expect from Ford Friday morning.

The information below is derived from data submitted to the platform by a set of Buy-Side and Independent analyst contributors.


(Click here to see Estimates and Interactive Features for Ford)

The current Wall Street consensus expectation is for Ford to report 32c EPS and $34.494B revenue, while the current consensus from 52 Buy-Side and Independent contributing analysts is 35c EPS and $34.869B in revenue. This quarter, the buy-side, as represented by the community, is expecting Ford to beat the Wall Street consensus by a sizable margin on both EPS and revenue.

Over the previous 6 quarters, the consensus from has been more accurate than Wall Street in forecasting Ford's EPS every time, and has been more accurate in predicting revenue 5 times. By tapping into a wider range of contributors, including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time; but more importantly, it does a better job of representing the market's actual expectations. It has been confirmed by Deutsche Bank (NYSE:DB) Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case, we are seeing an average differential between the two groups' expectations.

The distribution of estimates published by analysts on the platform range from 29c to 40c EPS and from $34.200B to $36.250B in revenues. This quarter, we're seeing a moderate distribution of estimates on Ford. Both the delta and range of estimates on forward look consistent with recent quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post-earnings.

Over the past 4 months, the Wall Street EPS forecast slipped from 34c to 32c, while the Estimize consensus gradually declined from a high of 41c to 35c. Meanwhile, Wall Street lowered its revenue projection from $35.168B to $34.494B, while the Estimize consensus sank from $36.313B to $34.869B. Timeliness is correlated with accuracy, and downward analyst revisions going into an earnings report are often a bearish indicator.

The analyst with the highest estimate confidence rating this quarter is WallStreetBean, who projects 38c EPS and $34.967B in revenue. WallStreetBean is ranked 24th overall among over 4,250 contributing analysts. Over the past 2 years, WallStreetBean has been more accurate than Wall Street in forecasting EPS and revenue 50% and 46% of the time, respectively, throughout 1,214 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research, which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case, WallStreetBean is making a bullish call, expecting Ford to exceed the expectations of both the Estimize community and Wall Street on EPS and sales.

This quarter, Wall Street has a fairly bleak outlook on Ford, while the Estimize community has higher expectations. Contributing analysts on the platform are calling for Ford to beat the Wall Street consensus by 3c per share in EPS and $375 million in sales. There are also widespread reports that Ford is getting ready to name Mark Fields as the next CEO, so don't be surprised if that announcement comes on Friday.

Disclosure: None