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Oct. 29, 2020, 12:57 p.m. EDT

Ford blew away Wall Street expectations, but here’s what analysts are looking at next

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BY Claudia Assis

Ford Motor Co.’s blowout quarter sent shares higher, fueling optimism on Wall Street that the auto maker finally has turned a corner.

Ford shares rose more than 5% on Thursday, on pace for their highest close since Feb. 13 and their largest one-day percentage increase since June 5. A gain at the close would also snap a four-day losing streak for the stock.

Ford /zigman2/quotes/208911460/composite F +1.37% late Wednesday reported third-quarter profit and sales that blew Wall Street expectations out of the water, saying its focus on popular, more profitable pickup trucks and SUVs boosted its bottom line amid a surge in demand and low inventory.

Ford earned an adjusted 65 cents a share on revenue of $37.5 billion in the quarter. Analyst consensus called for adjusted earnings of 20 cents a share on sales of $35.7 billion, according to FactSet.

It was Ford’s first quarterly report under Chief Executive Jim Farley, who became Ford’s top executive on Oct. 1 after former CEO Jim Hackett announced his retirement.

Farley’s management style drew praise on Thursday, although most analysts kept their ratings on the stock unchanged at least for the time being, saying that they needed to see more from the company.

Farley seemed to focus “on improving the (business) near-term (cost, execution), as well as reinvigorating growth,” analyst Dan Levy with Credit Suisse said in a note. “We believe Jim Farley will drive incremental urgency and accountability at Ford, and this could spark incremental investor interest.”

Levy kept the equivalent of a hold rating on Ford shares, however, saying Ford still has challenges balancing its “two clocks”: near-term operational improvement alongside longer-term transition to electric and autonomous vehicles.

Komal Patel at Goldman Sachs also praised Farley’s style as well as Chief Financial Officer John Lawler’s. Lawler became CFO also on Oct. 1.

“The new management (CEO/CFO) team focused on the importance of operational execution, successful product launches, managing costs, investing in profitable businesses (vs. fixing/disposing underperformers), improving warranty costs, and investing in electrification,” Patel said.

While Farley and team have shown a more transparent Ford, more needs to be done, and management has promised more details on financial targets and strategies for capital allocation for the next year, Patel said.

“We acknowledge that despite the success this quarter, Ford still has a lot to deliver on and consistently,” he said.

On Wednesday, Ford reiterated that it was on track for launching new vehicles such as an electric Mustang and a new 2021 F-150 pickup.

Investors “are getting excited around the prospects of a strong product cycle timed with cost reduction and a more frugal and decisive strategic vision following recent management changes,” Morgan Stanley analyst Adam Jonas said in his note.

Garrett Nelson at CFRA raised his price target on Ford by $1 to $6, but said that investors are likely to take the quarterly beat “with a grain of salt.”

Ford’s fourth-quarter EBIT guidance of between a $500 million loss and breakeven implies “a significant sequential earnings drop from the Q3 level of $3.66B,” Nelson said.

Ford “remains in the middle of a multi-year restructuring and while Jim Farley has wasted no time shaking things up since taking the CEO reins earlier this month, we think Ford’s turnaround is likely to take time.”

Shares of Ford have lost 14% this year, contrasting with gains around 2% for the S&P 500 index. /zigman2/quotes/210599714/realtime SPX +0.56%

/zigman2/quotes/208911460/composite
US : U.S.: NYSE
$ 8.86
+0.12 +1.37%
Volume: 71.33M
Nov. 23, 2020 4:03p
P/E Ratio
N/A
Dividend Yield
0.00%
Market Cap
$34.77 billion
Rev. per Employee
$820,526
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/zigman2/quotes/210599714/realtime
US : S&P US
3,577.59
+20.05 +0.56%
Volume: 2.51B
Nov. 23, 2020 5:02p
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