In a note circulated March 20, Morgan Stanley reiterated its underweight rating and $US11.00 price target on Ford, saying the stock should fall another 11% over the next 12 months.

“We believe a decline in used car values may occur a bit later than consensus, but could also prove to be far more severe,” the team led by equity analyst Adam Jonas wrote. “We see Ford as particularly vulnerable given the size of its Finco program relative to other OEMs.”

Ford has much higher levels of financing out in the world than other manufacturers when compared to market cap.

The other factors leading to Morgan Stanley’s underweight rating are as follows:

1) The bank thinks that consensus earnings estimates for Ford are overblown. Consensus is $US1.63, $US1.74, $US1.69 EPS for 2017, 2018, and 2019 respectively. Morgan Stanley thinks those estimates are high by 3%, 11%, and 12%.

2) The bank thinks the US auto cycle is peaking.

3) Ford is heavily exposed to the risk of increased competition in China.

4) Competition from new entrants such as Tesla, Apple, and Google.

Ford is currently trading at $US12.32 on Monday, down 1.28%. While it’s up almost 2% so far in 2017, it’s still down 9.3% over the last year.

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