A Ford Mustang at a charging station during the Washington Auto Show in January. Photographer: Al Drago/Bloomberg
Al Drago/Bloomberg
Wall Street is starting to act like this is as good as it gets for Ford Motor stock. That might be premature.
You can’t blame analysts for wondering, given the heights shares have hit. Shares of Ford (ticker: F) rose 136% in 2021, besting the comparable returns of General Motors (GM) and Tesla (TSLA).
What’s more, the stock is up 160% since CEO Jim Farley took over in October 2020. It is up 93% since Barron’s published a bullish cover story that November.
Those eye-popping gains are part of the reason Wall Street is cooling on the company. At least four analysts have downgraded Ford shares in the past few months. Most of the research reports praise management’s business execution and strategic direction while questioning whether stock gains can continue at an acceptable rate.
A cautious stance has been the correct call in recent weeks. The stock is down 32% from its January 52-week high of almost $26.
Shares of Ford—along with those of other auto makers—are falling because of concerns that profits have gone as high as they are going to. The term “peak profits” has crept into more than a few Wall Street reports as analysts wonder if record vehicle pricing can be sustained and worry that supply-chain woes, higher prices for materials, and parts shortages will crimp margins.
Even Ford’s strategic pivot into electric vehicles is now a headwind. Its all-electric Mustang Mach E was a success. Ford is also selling an all-electric Transit van, and its all-electric F-150 Lightning will ship in the first quarter, about a year before Tesla and GM will have electric trucks on the road.
Yet all that progress is now feeding the peak-profit narrative. After praising EV investments announced by Ford and others in 2021, analysts are now asking if that spending will sap corporate cash flow and produce cars that aren’t as profitable as the gasoline-powered versions they replace.
Farley doesn’t agree with the grim view analysts are taking. “Our best days are in front of us…to say it simply,” the CEO told Barron’s the day after his company’s fourth-quarter earnings report. He believes profit margins can keep improving even as Ford sells more EVs. And he argues that Ford can generate new revenue streams selling services and software across its customer base.
Investors, of course, would expect him to say that. He’s the CEO. But there are analysts who agree.
Credit Suisse’s Dan Levy is one. He believes Ford can keep improving, pointing out that its forecast of $12 billion in 2022 operating profits is up from the $10 billion reported in 2021. “Most encouragingly, the guide reflects Ford’s continued profit improvement, even against the backdrop of what some investors worried could be plateau/peak earnings,” he writes.
He rates Ford stock a Buy and has a $25 price target on the shares. Benchmark analyst Mike Ward has the stock at Buy, with a target of $29. It closed Friday at $17.55.
Stocks do best when profits, and earnings estimates, are marching higher, Ward notes. “We have a lot of upside over the next few years,” he tells Barron’s. He expects $2.25 in 2022 earnings per share, ahead of consensus projections of $2.06.
For now, Ward and Levy are in the minority among analysts, and shares reflect more fear than expectations for gains. The operating environment isn’t ideal, but vehicle demand remains solid. With the stock trading for about 8.5 times estimated 2022 earnings, and given Ford’s recent record of success, it remains a good bet.
Write to Al Root at [email protected]
