US auto industry in the midst of a once fabled ‘V-shaped recovery’: JPMorgan
The US auto market is bouncing back nearly as fast as it fell, making the hope of a V-shaped recovery real.
New vehicle sales and used vehicle prices are recovering in May and June almost as fast as they declined in March and April, according to JPMorgan. “We didn’t call it, nor did we expect it, but numerous data points all suggest the US auto industry is in the midst of a once fabled but clearly no longer mythical ‘V-shaped recovery,’" JPMorgan analyst Ryan Brinkman wrote in a report.
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That rebound prompted JPMorgan to raise its 2020 US light vehicle seasonally adjusted annual sales rate (SAAR) -- a closely watched sales measure -- by one million, to 14.5 million. The figure, materially above implied estimates from IHS Automotive of 13.2 million, also pushed JPMorgan to raise earnings per share estimates for automakers and suppliers, and led to higher price targets for Tesla Inc., General Motors Co. and Ferrari NV.
“The comeback in sales and prices has been faster than most anyone presumed," Brinkman said. “And because the shutdown of production lasted as long as it did amidst the more resilient than expected demand, inventories are now lean (even sparse), supporting an even sharper rebound in production, which comes as a relief to the entire supply chain."
Brinkman prefers General Motors to Ford because of its greater geographic exposure to North America and China, as a percentage of total sales. In addition, General Motors offers a “superior margin and [free cash flow] profile." The analyst raised the price target on GM to $33 from $29, and repeated an overweight rating on the shares. At the same time, Brinkman raised his price-target on the neutral-rated Ford, citing a chance that the shares may look more attractive in the second half as liquidity concerns fade.
Tesla’s price target was also raised, to $275 from $240, though Brinkman continues to rate the stock underweight due to rich valuations. Ferrari’s price target was raised to $145 from $133 following a better-than-expected recovery in sales after a Covid-19-induced slump. JPMorgan maintained its neutral rating on Ferrari, also citing valuations.