- Ford stock has responded negatively following quarterly results.
- The company reported a big drop in sales for the month of July.
- Some in the option market are positioned for the stock to fall further.
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Ford (NYSE:F) reported better than expected quarterly results recently, which easily beat estimates. This has prompt sell-side analysts to raise their consensus earnings and revenue forecast for the company for the rest of 2021 and 2022. However, the company noted on August 4 that its US retails sales dropped 37.7% in July, with cars falling 78.7% and SUVs dropping 30.5%.
Despite the strong results and positive upward revisions, the stock has struggled to advance, giving back all of its post-earnings gains. Now the options market is betting the stock continues to struggle and falls further, as it was betting would happen before the company reported results at the end of July.
Estimates Are On The Rise
The stock has responded negatively to the last round of disappointing quarterly results. Still, following those results, analysts have increased their revenue estimates for 2021 and now see Ford's sales climbing to $130 billion from $128.5 billion. The big jump in sales growth is expected to occur next year, with revenue now forecast to rise to $158.7 billion versus prior estimates of $156.5 billion back at the end of July. Growth is expected to slow dramatically though heading into 2023, with sales estimates rising to $160.9 billion.
Earnings estimates for 2021 have risen the most to around $1.61 per share from $1.20 at the end of July. With earnings growth slowing and rising to $1.90 and $2.11 in 2022 and 2023.
Good News Is Already Priced In
The big problem for the stock is that it already reflects much of this future growth. The equity currently trades for 6.7 times its 2-year forward earnings estimates, which is exactly in line with its historical average of the past 5 years. The stock may see multiple expansion over time, but with the earnings growth rate likely to decelerate in coming years, it is doubtful that the stocks multiple would expand much from its current level.
Additionally, the equity is not cheap from a price-to-sales standpoint, trading for 0.34 times its 2023 sales estimates. That is well above its historical average of 0.27 over the past 5-years. It is also in line with where the stock was in 2016 and 2017. It too would suggest that much of the good news for the stock going forward has already been priced in.
Bearish Options Position
This is likely why the options market continues to show some very bearish positioning for Ford. On July 30, the open interest for the Ford October 15 $14 puts saw a large increase in their open interest level, around 38,100 contracts. The data shows that these puts were bought on the ASK for roughly $0.84 per contract. This would imply that the stock is trading at $13.15 or lower by the expiration date in October. It is a fairly sizeable bearish bet that the stock will fall too, with almost $3.2 million premium paid.
Weak Technical Trends
The technical chart for Ford remains very bearish and suggests that the stock's decline is far from over. The stock did move higher following results; however, the shares quickly reversed those losses in the following days. On August 4, the equity finds itself sitting on support around $13.50, but a break of that level of support likely sends Ford even lower, possibly to $12.75. Momentum indicators remain very bearish using the relative strength index and the MACD, indicating that stock declines have not been completed.
Ford's stock had a huge run, but that all seems to be unwinding now, as it appears a lot of good news has already been priced into the shares. It means the onus will be on the company to get investors to become even more optimistic. However, some options traders do not see that happening anytime soon, and the weak July sales data isn't likely to help, even strengthening the bear's case.
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This article was written by
Mott Capital is managed by Michael Kramer, a former buy-side trader, analyst, and portfolio manager with 30 years of experience tracking market fundamentals. He focuses on long-only macro themes and studies trends and unusual options activities to identify long-term thematic growth opportunities. Since its inception in 2016, the Mott Capital Management portfolio is up 115.4% using the fundamentals and macro trend-based approach to trading.
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