JPMorgan lowered stock price targets for General Motors Co. (GM), Ford Motor Co. (F) and Tesla Inc. (TSLA) on Thursday, as the car companies were forced to cut production in the midst of the outbreak of the coronavirus that causes COVID-19. Analyst Ryan Brinkman noted that IHS Automotive materially lowered its expectations for global light vehicle production for the first quarter this week to -16.6% from -10.8% prior, and for the full year to -4.8% from -1.9%. JPMorgan is assuming the actual decline will be even worst given that production cuts have been announced since the IHS report was released. In a note to clients, Brinkman said distributor LKQ Corp. (LKQ) is best positioned, given it serves after markets, along with tire makers. "Automakers and suppliers, by contrast, are worse positioned, given the cyclical and discretionary nature of vehicle purchases, and given the rapidity of the decline in production which implies higher than typical decremental margins (ordinarily 30% for automakers and 20-25% for suppliers)," the analyst wrote. "Rental cars service providers could be worst positioned because of the precipitous decline in leisure and business travel. While there exist at the moment multiple tempting bargains across the automotive sector after one of the fastest market pullbacks in history, given the number of unknowns - including the duration of social distancing, etc. - we generally prefer higher quality companies, often with lower leverage, within subsectors (e.g., GM (GM) > Ford (F) amongst automakers, Cooper Tire (CTB) CTB > Goodyear Tire (GT) GT amongst tires, and Avis Budget (CAR) CAR > Hertz (HTZ) HTZ amongst rentals)." Brinkman lowered his Ford stock price target to $7 from $9, lowered GM to $30 from $46 and lowered Tesla to $240 from $260. All three were lower premarket.
-Ciara Linnane; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
March 19, 2020 09:19 ET (13:19 GMT)
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