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So Long As It Is Black…

17 January 2019 by jbchevrel

Ford Co (F) 5y CDS widened c20bp on the day, making it the worst performing name in CDX IG index. F presented worse than expected 2018 results at the global auto conference in Detroit yesterday. Preliminary 2018 EPS is $1.30, vs previous range of $1.30-$1.50, and vs consensus of $1.32. This 2018 weakness was mainly due to difficulties in China, Europe, and LatAm, partly caused by tariffs and higher raw material prices. 2019 outlook is more upbeat. But black swans remain, including cost cutting execution risks and a recovery in China/Europe which may not happen so soon. Adding to that, F also stated that a no-deal Brexit would be very negative for them, and for the industry. Nevertheless, F reaffirmed long-term targets of >8% EBIT margin and <2.5x leverage ratio. Its core market, North America, seems to be closest to target, with a 7.9% Adj EBIT margin vs 8% target. F also remains committed to its IG ratings (F is BBB/BBB at S&P Fitch) but Moody’s remains the weak link (Baa3 neg since last summer).