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Analysts revise Ford stock price target after earnings
Ford Motor's F chief executive told analysts during the automaker's third-quarter-earnings call that "we're going to continue to stay laser-focused on cost and getting leaner as a company."
The Dearborn, Mich., company missed Wall Street analysts' consensus expectations in the previous quarter as warranty costs pushed down profit.
Ford posted slightly better-than-expected results for the latest quarter but guided to the low end of its 2024 earnings forecasts.
"Costs, especially warranty, has held back our earnings power, but as we bend that curve, there is significant financial upside for investors," Farley said.
"By design 70% of the bonuses for our managers is tied to cost and quality, and more than half of our long-term incentives as leaders is tied to [total shareholder return]."
The company's top executive noted that competition in electric vehicles has sparked a global price war fueled by overcapacity, a flood of new EV nameplates, and massive compliance pressure.
He also told analysts that Ford was "deep into the design and engineering of our next-generation vehicles."
"Boy, are we excited about these coming out in the next few years," Farley said. "In 40 years in the industry, I've seen a lot of game-changer products. But the midsized electric pickup designed by our California team has got to be one of the most exciting."
Ford CEO: EVs on 'interesting journey'
He added that "it's an incredible package in consumer technology for a segment we know well."
"It matches the cost structure of any Chinese auto manufacturer building in Mexico in the future," Farley said.
Investors, however, were clearly not pleased with what they heard and Ford shares were off nearly 9% at last check. The stock is down almost 15% year-to-date and up 4.2% from a year ago.
Ford reported third-quarter profit of 49 cents a share, up from 39 cents a year earlier and ahead of the consensus forecast of 47 cents a share.
Revenue rose 5% to $46 billion, beating Wall Street's call for $41.88 billion.
"I would say the EV journey has been really interesting because as much as a slowdown, I'm really proud of the team reacting really quickly to it," Farley said.
He noted that perhaps Ford didn't expect the popularity of hybrids, especially with trucks.
"Most of our competitors don't offer hybrid on an F-150 or a Maverick," Farley said. "And this has been a fantastic revenue opportunity for us. We frankly can't keep up with the demand."
Looking ahead, Ford said that it expected adjusted earnings of roughly $10 billion for the full year, compared with a prior forecast of between $10 billion and $12 billion.
The company maintained its call for adjusted free cash of between $7.5 billion and $8.5 billion.
Investment firms weigh in on Ford
Investment firms issued research notes after Ford reported the quarterly results.
Morgan Stanley said investors "may struggle to see the silver linings" from the Q3 report. The investment firm says the fiscal 2025 consensus will likely continue to fall as Ford needs to show more progress on factors within its control, specifically reducing inventory and improving costs, according to The Fly.
Morgan Stanley noted that its current forecast for Ford's 2025 adjusted earnings before interest and taxes is $9.8 billion, marginally below the 2024 revised guidance at $10 billion.
But "for now as we continue to review our assumptions," the investment firm sees scope for FY25 consensus expectations, which currently call for profit to be flat, potentially to "fall materially." That's because of "bloated inventory, competitive price pressure and continued elevated costs."
Morgan Stanley has an equal-weight rating and $12 price target on Ford shares.
Analyst expects better profit and progress
Bank of America Securities analysts reiterated their buy rating on Ford while cutting their price target to $19 from $20.
In a note entitled "Not an electric quarter, but full tank for the long haul," the investment firm said that despite lighter results, management continued to paint a positive picture of Ford's recent efforts.
Management called out Ford's portfolio strength in its core truck market, especially in Pro, the commercial division, which is a priority for capital allocation, B of A said.
On top of the core business, management reiterated potential growth opportunities in software and services, which have early traction.
"There is some time to go before all the new investments Ford is making materialize," Bank of America Securities said. "However, with a strong near-term product cadence combined with management's focus, we expect better profits and progress in 2025+."
Deutsche Bank analysts maintained their hold rating on Ford while trimming their price target to $10 from $11.
Ford reported mostly in-line 3Q results but sees the full-year now at the low end of its prior guidance, the investment firm said. That implies "a weak 4Q, blaming warranty, inflation in Turkey (hurting European [commercial vehicle business]), and supplier issues related to hurricane and productivity."
Looking at 2025, Deutsche Bank noted that management kept commentary limited, indicating that EV costs should decline and the Biden administration's Inflation Reduction Act would be a material benefit starting midyear. But Ford also indicated that pricing could be a big offset since many new nameplates are entering the market.
"Walking from Q3 to Q4, management indicated that there will not be much help from volume/mix, and the implied step-down will be primarily driven by pricing weakening and more costs," the firm said.
"The quarter demonstrates the incredible complexity of the industrial system at Ford, and while gross cost reduction is progressing, we note there is a lot more to be done on a net cost reduction basis," Deutsche Bank added.
