Ford Motor Co. NEUTRAL ZACKS CONSENSUS ESTIMATES (F-NYSE)

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1 March 13, 2015 Ford Motor Co. (F-NYSE) Current Recommendation SUMMARY DATA NEUTRAL Prior Recommendation Underperform Date of Last Change 06/11/2014 Current Price (03/12/15) $16.17 Target Price $ Week High $ Week Low $13.54 One-Year Return (%) Beta 1.53 Average Daily Volume (sh) 23,297,638 Shares Outstanding (mil) 3,956 Market Capitalization ($mil) $63,969 Short Interest Ratio (days) 2.54 Institutional Ownership (%) 57 Insider Ownership (%) 2 Annual Cash Dividend $0.60 Dividend Yield (%) Yr. Historical Growth Rates Sales (%) 3.0 Earnings Per Share (%) -5.8 Dividend (%) 50.7 P/E using TTM EPS 13.9 P/E using 2015 Estimate 10.2 P/E using 2016 Estimate 8.4 Zacks Rank *: Short Term 1 3 months outlook 3 - Hold * Definition / Disclosure on last page SUMMARY Ford posted earnings per share of $0.26 for the fourth quarter of 2014 that declined year over year, but surpassed the Zacks Consensus Estimate of $0.22. Revenues fell 4.5% to $35.9 billion, but exceeded the Zacks Consensus Estimate of $34.1 billion. Ford reaffirmed its 2015 pre-tax profit guidance of $8.5 $9.5 billion. The positives for Ford include planned product launches, focus on the Asia-Pacific region, global expansion plans, efficient capital deployment, success of the One Ford plan and a solid longterm outlook. However, there are several headwinds, such as weakness in South America, Middle East & Africa, and Europe, frequent product recalls and rising structural expenses. Risk Level * Below Avg., Type of Stock Large-Blend Industry Auto -Domestic Zacks Industry Rank * 83 out of 267 ZACKS CONSENSUS ESTIMATES Revenue Estimates (In millions of $) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) ,649 A 37,923 A 35,775 A 37,570 A 146,917 A ,900 A 37,400 A 34,900 A 35,900 A 144,100 A ,210 E 36,442 E 35,510 E 37,113 E 143,275 E ,008 E Earnings Per Share Estimates (EPS is operating earnings before non-recurring items, but including employee stock options expenses) Q1 Q2 Q3 Q4 Year (Mar) (Jun) (Sep) (Dec) (Dec) 2013 $0.41 A $0.45 A $0.45 A $0.32 A $1.63 A 2014 $0.25 A $0.40 A $0.24 A $0.26 A $1.16 A 2015 $0.26 E $0.40 E $0.47 E $0.46 E $1.59 E 2016 $1.93 E *Note: EPS in 2014 do not add up to annual figure due to rounding-off. Projected EPS Growth - Next 5 Years % Zacks Investment Research, All Rights reserved North Canal Street, Chicago IL 60606

2 OVERVIEW Ford Motor Company (F) is an auto manufacturer and auto financial services provider with operations in the U.S. and across the world. The company manufactures and distributes automobiles in 200 markets across 6 continents. Ford has two operating sectors Automotive and Financial Services. The segments under the Automotive sector have been restructured as Ford North America, Ford South America, Ford Europe, Ford Middle East & Africa and Ford Asia Pacific. The Automotive sector (which generated roughly 94.2% of the company s total revenue in 2014) is engaged in the design, development, manufacture, sale and service of cars and trucks. More than 60% of the consolidated auto revenue is derived from truck sales, while car sales generate the balance. The Financial Services sector (5.8%) includes the segments of Ford Credit and Other Financial Services. Ford Credit deals with vehicle-related financing and leasing, while the Other Financial Services segment includes a variety of businesses such as holding companies and real estate-related activities. The company s key competitors include Chrysler Group LLC, General Motors Company, Honda Motor Company, Nissan Motor Company and Toyota Motor Corporation. REASONS TO BUY Ford s results are expected to improve in 2015 as it plans to launch 15 vehicles during the year. As a result, pre-tax profit, excluding special items, is expected in the range of $8.5 $9.5 billion in This is substantially higher than $6.3 billion recorded in 2014 as Ford anticipates better results from all five geographic segments this year. Automotive revenues, operating margin and operating-related cash flow are also expected to be higher than Ford estimates 2015 pre-tax profit in North America to be higher than the 2014 level of $6.9 billion and operating margin to range from 8% 9%, compared with 8.4% in Ford expects to record significant improvement in results from South America this year compared with the loss of $1.16 billion incurred in In Europe, Ford expects better results this year compared with the loss of $1.06 billion recorded in In the Asia-Pacific, Ford anticipates pre-tax profit to be higher than the 2014 level of $589 million. Moreover, the automaker expects that Ford Credit s profits in 2015 will be in line with or higher than the 2014 level of $1.85 billion. Ford is pursuing a major expansion plan in many mature and emerging markets. The company expects the Asia-Pacific (mainly China and India) to account for 60% 70% of its global growth in this decade and generate 40% of its vehicle sales in the next 4 to 5 years. The popularity of the expanded product line-up in China boosted the automaker s sales in the nation by 49% in 2013 and 19% in Moreover, the sales volume in China touched a record high of over 1.1 million units in Going ahead, Ford plans to introduce 15 new vehicles in China by 2015-end. In order to support the demand in the nation, Ford invested $600 million to open its third assembly plant in Chongqing, China in Nov 2014, which increased its passenger vehicle capacity by 360,000 vehicles. It also opened a transmission plant and launched 88 dealerships across China in Jun Ford is setting up another assembly plant in Hangzhou, which will be unveiled in 2015 and have a production capacity of 300,000 vehicles. Additionally, in Nov 2014, Ford opened its first 3 Lincoln stores in China and aims to open 60 stores by 2016-end. The automaker will launch five new Lincoln vehicles in the nation by Further, Ford expects to benefit from its focus on manufacturing operations in India. The company will open two plants in India this year. It intends to manufacture 450,000 cars and 600,000 engines in India by Meanwhile, the automaker anticipates small cars to account for 55% of total sales by One-third of small car sales are expected from Asia. Ford projects Equity Research F Page 2

3 compact car sales in India to reach about 2 million vehicles in 2018, almost double that of the 2013 level. In order to support the increasing sales, Ford aims to extend dealerships in India to 500 by Ford is also turning toward capital deployment to boost shareholder value. The company increases its dividend in the first quarter of every year since Ford increased its dividend for the first quarter of 2015 by 20% to $0.15 per share. Moreover, in May 2014, the company s board approved a new repurchase program for 116 million shares, which was completed in Aug These share repurchases offset the impact of share dilution due to the share-based employee incentive compensation granted in In 2014, Ford created a new business unit Ford Middle East & Africa, to capitalize on the growing importance of the Middle East and African markets. The combined region is expected to witness a 40% surge in industry sales to 5.5 million by To strengthen its foothold in this lucrative market, Ford will launch 17 new or revamped cars under the Ford and Lincoln brands in 2014 and Including these, the automaker is planning to launch over 25 new vehicles in the Middle-East and Africa region by The company also intends to make customer support and car parts easily available there. The automaker intends to take advantage of the growing market to increase its sales in the small, mid-size and large vehicle segments. Ford s accelerated product transformation plan One Ford is positively impacting the company. The foremost mission is to produce common vehicle models for all of its global segments. Another key objective of the plan is to shift focus from trucks to small cars and deliver more vehicles from fewer core platforms. The company expects utility vehicles to comprise 29% of its global sales by Further, Ford expects to meet the challenges in Europe and South America by executing its One Ford plan. The company has already renewed the majority of its product line-up along with a few discontinuations and has planned several launches under the program. It launched a record 16 vehicles in North America and 24 new or significantly refreshed products globally in It plans to roll out 25 new models in Europe between Sep 2012 and Sep 2017 to drive car sales in the continent. In order to develop new models, Ford will build new plants, raising its capital spending to about $6 billion annually by mid-decade from $4.3 billion in The company plans to launch 15 vehicles globally in In the long run, Ford expects all automotive business units and Ford Credit to be profitable. The company anticipates annual global sales to increase 45% 55% to nearly 9.4 million by Automotive operating margin is expected to improve to 8% by 2020, while the company targets further improvement to 8% 9% over a longer term. Ford is also targeting positive operating-related cash flow, capital spending of about $9 billion per annum and investment grade profile of A by Further, the company aims to sell 300,000 Lincoln vehicles, triple the current sales, driven by the brand s launch in China and improved market coverage. Ford also plans to launch two Lincoln vehicles, apart from the MKZ and MKC, by 2016 and another two by REASONS TO SELL Ford s European operations continue to remain loss-making despite restructuring initiatives. The company was earlier planning to restore profitability in its European operations by However, it now expects losses from Europe this year, although results are expected to improve over High competition and weak economic growth in the Euro area are expected to weigh on the results. Weakness in the Russian currency and economy are also expected to hamper the company s results in Europe. Moreover, the weak demand in Europe forced the company to lay off 500 employees at its Romanian division. Ford also resorts to frequent production cuts in Romania due to lack of demand. Equity Research F Page 3

4 In the Middle East & Africa unit, Ford expects to record year-over-year increase in losses in 2015 due to investments for future growth. The company had recorded a pre-tax loss of $20 million in the region in Moreover, revenues and wholesale volumes had declined year over year in Ford expects losses from South America this year, although results are expected to improve over The losses are expected due to the weak economic situation as well as expectations of in-line industry sales compared with Moreover, the losses are expected after removing the impact of the Venezuelan operations. Ford s South American operation has been facing challenges since 2013 due to weakness in the industry, unfavorable exchange rates, high inflation, capital controls and changing regional trade policies. As a result, the company reported pre-tax losses from the region in both 2013 and Ford had to stop vehicle assembly at its Venezuela plant in May 2014 due to a lack of foreign currency to import parts for assembly. The company also incurred a charge of $800 million in the fourth quarter of 2014 owing to the Venezuelan currency devaluation, which adversely affected net income by $700 million, after deferred tax benefits. The automaker expects further trouble down the road due to weak industry volumes, low GDP growth, high inflation, weak currencies, lower foreign exchange reserves, changes in trade policies and political and social uncertainty in some countries. Ford has been replacing its older models and rolling out new ones. This involves a substantial expenditure, which resulted in high structural costs in The costs increased in 2014 too due to higher volumes as well as expansion and improvement of the company s line-ups. The company expects significant costs and production volume losses in the first half of 2015 due to the planned launch of 7 new vehicles. Like some of its peers, Ford has also been recalling its vehicles frequently to fix safety issues. Frequent product recalls not only reduce consumers confidence in a brand, but also add to expenses. The National Highway Traffic Safety Administration ( NHTSA ) and federal regulators are conducting several investigations related to Ford. In Mar 2015, the NHTSA added the 2013 Ford Fusion and Lincoln MKZ cars to an ongoing investigation of Ford Fiesta door latches that may not close properly. In Jan 2015, federal investigators started investigating whether the company should expand a 2013 safety recall of diesel trucks that had malfunctioning sensors. In Aug 2014, the NHTSA started an investigation related to the possible failure of front brake hoses on Ford Explorer Police Interceptor SUVs of the 2013 model year. Further, in Jun 2014, the NHTSA started investigating consumer reports which indicated that exhaust fumes, including carbon monoxide, sometimes enter the passenger cabin of Ford Explorer vehicles of model years Another investigation by NHTSA, started in Jul 2014 for steering problems in 500,000 Ford vehicles, was closed in Nov 2014 without asking for a recall. RECENT NEWS Ford Beats Q4 and FY14 Earnings Estimates, Down Y/Y Jan 29, 2015 Ford posted earnings per share of $0.26 for the fourth quarter of 2014, lower than $0.32 earned in the fourth quarter of 2013 (all excluding special items). With this, earnings surpassed the Zacks Consensus Estimate of $0.22. Pre-tax income declined 15% to $1.12 billion from $1.32 billion in the fourth quarter of Net income decreased to $52 million or $0.01 per share from $3.07 billion or $0.75 per share a year ago. Net income Equity Research F Page 4

5 includes pre-tax special item charges of $1.2 billion in fourth-quarter 2014 and $311 million in fourthquarter 2013, along with favorable tax special items of $2.1 billion in fourth-quarter Revenues in the fourth quarter of 2014 fell 4.5% to $35.9 billion, exceeding the Zacks Consensus Estimate of $34.1 billion Results Ford reported earnings of $1.16 per share in 2014, down from $1.63 per share in Earnings per share surpassed the Zacks Consensus Estimate of $1.11. Net income decreased to $3.2 billion or $0.80 per share from $7.2 billion or $1.77 per share a year ago. Net income for 2014 includes pre-tax special item charges of $1.6 billion. Net income for 2013 includes pre-tax special item charges of $1.9 billion and favorable tax special items of $2.1 billion. Revenues decreased 1.9% to $144.1 billion from $146.9 billion in 2013, exceeding the Zacks Consensus Estimate of $136.4 billion. Ford launched a record 24 vehicles globally in Some of the noteworthy launches include the new F-150, Mustang, Escort, Ka, Transit and Lincoln MKC Ford Automotive Revenues in the segment declined 5% to $33.8 billion in fourth-quarter 2014 due to unfavorable exchange, a 2% fall in wholesale volumes to 1.58 million units and weakness in all business units. The decline in volume reflects lower volume in North America. Pre-tax profit declined to $713 million from $963 million a year ago. In North America, revenues went down 5% to $20.9 billion on a 5.9% decline in wholesale volumes to 700,000 units. The volume was affected by lower market share and lower dealer stock increases compared with the fourth quarter of 2013 that offset the impact of higher industry volumes. Further, pretax profit was down 14% to $1.5 billion. In South America, revenues declined 9% to $2.5 billion due to unfavorable exchange, volumes and mix, which offset the net pricing gains. Wholesale volumes declined 2% to 132,000 units, reflecting lower industry sales due to import restrictions in Argentina and the weakness in the Brazilian economy. Pre-tax loss amounted to $187 million compared with $126 million in the fourth quarter of 2013 due to higher warranty costs. In Europe, revenues decreased 2% to $6.8 billion due to unfavorable exchange, although wholesale volumes increased 5% to 323,000 units. The increase in volumes was attributable to higher industry volumes and favorable dealer stock changes. The region had a narrower pre-tax loss of $443 million compared with $529 million a year ago due to favorable market factors. In the Middle East & Africa segment, revenues fell 2% to $1 billion on a 10% decline in wholesale volumes to 44,000 units. The decline in volumes resulted from the unfavorable change in dealer stocks. The region reported a pre-tax loss of $82 million, compared with a pre-tax loss of $104 million a year ago. In the Asia Pacific region, revenues fell 9% to $2.6 billion due to lower volume from consolidated operations and unfavorable exchange. Meanwhile, wholesale volumes increased 2% to 381,000 units on the increase in industry volumes, which offset the decline in market share. Market share in the region went down 0.1% to 3.5%. In China, Ford s market share inched down 0.1% to 4.3%. Equity Research F Page 5

6 The Asia-Pacific region reported pre-tax profit of $95 million, down from $109 million in the year-ago quarter. The deterioration was due to higher warranty costs. Ford s Other Automotive consisting primarily of interest and financing-related costs revealed a pretax loss of $218 million, compared with $187 million in the year-ago period. Financial Services Revenues in the segment rose 5% to $2.1 billion. Ford Credit reported a 15% surge in pre-tax profit to $423 million in the fourth quarter. Financial Position Ford had cash and marketable securities of $21.7 billion as of Dec 31, 2014, down from $25.1 billion as of Dec 31, However, Automotive debt decreased to $13.8 billion as of Dec 31, 2014 from $15.7 billion as of Dec 31, In 2014, the company s cash flow from continuing operations increased to $8.8 billion from $7.7 million a year ago. Automotive operating-related cash flows fell to $3.6 billion from $6.1 billion a year ago. Capital expenditures increased to $7.4 billion from $6.6 billion in Dividend Update On Jan 8, 2015, Ford increased its dividend for the first quarter of 2015 by 20% to $0.15 per share. The new dividend was paid on Mar 2, 2015 to holders of the outstanding Class B and common stock. Business Update On Mar 6, 2015, Ford announced that it has started manufacturing 2.0-liter and 2.3-liter EcoBoost engines at the Cleveland Engine Plant in Ohio. These latest twin-scroll engines will be manufactured mainly for vehicles built in North America. On Mar 3, 2015, Ford reported a 1.9% decline in sales in the U.S. to 180,383 units in Feb Brandwise, the automaker s Ford brand s sales fell 1.7% to 174,219 units in the month. Meanwhile, the Lincoln brand reported a 7.5% decline in sales to 6,164 units. Sales of cars and utility vehicles fell 8.1% and 2.3% to 56,081 and 54,420 units, respectively. However, truck sales increased 4% in February, driven by a 24.6% surge in sales of the Transit Connect and an 18.7% rise in sales of heavy trucks. On Mar 3, 2015, Ford unveiled the new Ford Focus RS at the Geneva Motor Show. It will be manufactured at Ford s Saarlouis, Germany, manufacturing plant beginning late The car will feature the Ford Performance All-Wheel Drive with a 2.3-liter EcoBoost engine. On Feb 6, 2015, Ford reported a 19% surge in China sales to 112,599 units in January. The record-high monthly sales were driven by the demand for Ford Escort, the Ford Mondeo and the Ford Focus. On Feb 5, 2015, Ford reported that it is in the final stages of upgrading its manufacturing plant in Valencia, Spain, which involves an investment of $2.6 billion, the highest by any automaker in that country s auto industry. The investment will increase the plant s production capacity to 450,000 vehicles annually. This year, Ford will increase the plant s production by 40% to 400,000 units. The improvement will place the Valencia plant among Ford s biggest and most flexible units in the world. On Feb 3, 2015, Ford reported a 15% increase in sales in the U.S. to 178,351 units in Jan Retail sales increased 13% to 178,351 vehicles. Brand-wise, the automaker s Ford brand s sales increased Equity Research F Page 6

7 15.5% to 171,732 units in the month. Meanwhile, the Lincoln brand reported a 10.8% increase in sales to 6,619 units. Sales of cars and utility vehicles increased 17.1% and 8.3% to 56,961 and 52,733 units, respectively. Further, truck sales surged 19.8% to 68,657 units in January. On Jan 20, 2015, Ford officially launched the export of the 2015 Ford Mustang to its global customers in more than 100 markets. The company will be delivering the first shipments of the Mustang to Asian customers. The vehicle will be available in the European market by mid On Jan 16, 2015, Ford announced that it is increasing the production of its top-selling vehicles at the Saarlouis and Cologne assembly plants in Germany. The automaker is taking this step in order to satisfy the rising demand for top-selling vehicles along with the expected increase in industry sales in the first half of From Feb 2015, Ford increased the production of the Ford Fiesta by 300 units per day to 1,850 vehicles at the Cologne plant. The company also increased the production of the Focus, C-MAX and Grand C-MAX by 240 units per day to 1,770 vehicles at the Saarlouis plant from January. On Jan 13, 2015, Ford launched the new Lincoln MKX at the 2015 North American International Auto Show. The vehicle will feature a 2.7-liter EcoBoost engine and offer two all-new available Lincoln Black Label limited-edition designer themes. On Jan 12, 2015, Ford unveiled three new vehicles under its Ford Performance lineup: the new GT, new Shelby GT350R Mustang and new F-150 Raptor. These vehicles are among the 12 new Ford Performance vehicles that will be launched by The new GT, which is being promoted as an ultrahigh-performance supercar, will be manufactured from late The new Shelby GT350R Mustang is a limited production vehicle, which will be sold in the U.S. and Canada later this year. The new F-150 Raptor will be manufactured at Ford s Dearborn Truck Plant, and will go on sale in fall On Jan 5, 2015, Ford reported U.S. sales of 2,480,942 vehicles in 2014, in line with Sales volume of the Lincoln brand vehicles surged 16% year over year to 94,474 units, the highest since Ford remained America s best-selling vehicle brand for the fifth consecutive year. Meanwhile, the F-Series emerged as the best-selling vehicle for the 33rd straight year and best-selling truck for the 38th consecutive year Guidance Ford reaffirmed the pre-tax profit guidance, excluding special items, in the range of $8.5 $9.5 billion for This is substantially higher than $6.3 billion recorded in 2014 as Ford expects better results from all five geographic segments this year. Automotive revenues, operating margin and operating-related cash flow are also expected to be higher than The automaker intends to launch 15 new global vehicles in Ford estimates 2015 pre-tax profit in North America to be higher than the 2014 level of $6.9 billion and operating margin to range from 8% 9%, compared with 8.4% in Ford expects to report significantly better results from South America this year compared with the loss of $1.16 billion in In Europe, Ford expects better results than the loss of $1.06 billion in In the Middle East & Africa unit, Ford expects to record losses in In Asia Pacific, Ford guides pre-tax profit to be higher than the 2014 level of $589 million. Moreover, the automaker expects that Ford Credit s profits in 2015 will be in line with or higher than the 2014 level of $1.85 billion. Equity Research F Page 7

8 VALUATION Currently, shares of Ford are trading at 10.2x our 2015 earnings per share (EPS) estimate of $1.59. The company s current trailing 12-month earnings multiple is 13.9x, compared with the 15.2x average for the peer group and 18.0x for the S&P 500. Over the last five years, Ford s shares have traded in a range of 4.8x to 14.2x trailing 12-month earnings. The stock is trading at a discount to the peer group and S&P 500, based on forward earnings estimates. The current P/E ratio is at a 19.7% discount to the peer group for Our long-term Neutral recommendation on the stock indicates that it will perform in line with the overall market. Our target price of $17.00, which is 10.7x our 2015 EPS, reflects this view. Key Indicators P/E F1 P/E F2 Est. 5-Yr EPS Gr% P/CF P/E P/E 5-Yr High P/E 5-Yr Low Ford Motor Co. (F) Industry Average S&P General Motors Company (GM) PACCAR Inc. (PCAR) Harley-Davidson Inc. (HOG) TTM is trailing 12 months; F1 is 2015 and F2 is 2016, CF is operating cash flow P/B Last Qtr. P/B 5-Yr High P/B 5-Yr Low ROE D/E Last Qtr. Div Yield Last Qtr. EV/EBITDA Ford Motor Co. (F) Industry Average S&P N/A 2.0 N/A Equity Research F Page 8

9 Earnings Surprise and Estimate Revision History Equity Research F Page 9

10 DISCLOSURES & DEFINITIONS The analysts contributing to this report do not hold any shares of F. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers. Outperform- Zacks expects that the subject company will outperform the broader U.S. equity market over the next six to twelve months. Neutral- Zacks expects that the company will perform in line with the broader U.S. equity market over the next six to twelve months. Underperform- Zacks expects the company will under perform the broader U.S. Equity market over the next six to twelve months. The current distribution of Zacks Ratings is as follows on the 1018 companies covered: Outperform %, Neutral %, Underperform 6.4%. Data is as of midnight on the business day immediately prior to this publication. Our recommendation for each stock is closely linked to the Zacks Rank, which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. In determining Risk Level, we rely on a proprietary quantitative model that divides the entire universe of stocks into five groups, based on each stock s historical price volatility. The first group has stocks with the lowest values and are deemed Low Risk, while the 5 th group has the highest values and are designated High Risk. Designations of Below-Average Risk, Average Risk, and Above-Average Risk correspond to the second, third, and fourth groups of stocks, respectively. Equity Research F Page 10