Analyst revamps Ford stock-price target after earnings

Here's what could happen next to Ford shares next.

Feb 8, 2024 - 08:30

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Analyst revamps Ford stock-price target after earnings

Jim Farley is gearing up for the next generation of electric vehicles.

The Ford (F) CEO made his case to analysts on Feb. 6 during the automaker's fourth-quarter earnings call. He discussed plans for making an affordable electric vehicle to compete with Tesla (TSLA) and Chinese automakers.

"Last year turned out to be a fundamental year -- a foundational year for our company," Farley said, according to a transcript of the call.

Indeed. That year, the auto industry was buffeted by a six-week United Auto Workers strike that reportedly drained about $1.7 billion from Ford's bottom line.

Then, there was a slowdown in electric vehicle sales, causing automakers to curtail or scrub their EV production plans.

Last month, Ford announced it would shut down one of two production shifts in April at the Dearborn, Mich., factory that builds the F-150 Lightning electric pickup, citing lower demand for the pickup truck even as Tesla launched its Cybertruck.

Ford said that for 2024, it expects losses for its EV division, 'Model e', to widen to $5 billion to $5.5 billion because of pricing pressure and investments in next-generation vehicles.

Ford CEO Jim Farley has big plans to profitably grow the company's electric vehicle sales.
Bill Pugliano/Getty Images

Ford takes aim at Tesla

"We've seen explosive growth in EVs in 2021 and 2022, and we realized very quickly that our first three Gen 1 products, we didn't have enough capacity," Farley said during the call.

He cited challenges from covid-19 "supply shocks" and the microchip shortages brought on by the pandemic.

"As the Covid shock retreated, we learned that as you scale EVs to 5,000 to 7,000 units a month and you move into the early majority customer, they are not willing to pay a significant premium for EVs," he said.

Despite the hardships, though, Ford posted better-than-expected fourth-quarter results and garnered a positive response from analysts.

It earned 29 cents a share, double Wall Street’s call for 14 cents. Revenue totaled $46 billion, compared with the FactSet consensus of $43.01 billion.

The automaker also declared a special dividend of 18 cents a share and a first-quarter regular dividend of 15 cents a share.

A year earlier, Ford reported 51 cents a share earnings on $44 billion in sales.

Looking ahead, Farley said hybrid vehicles would "play an increasingly important role in our industry's transition and will be here for the long run."

Farley told analysts about the company's next-generation EVs and how Ford made "a bet in silence two years ago."

"We developed a super-talented Skunk Works team to create a low-cost EV platform," he said, using the term for a project outside the normal research-and-development channels.

"It was a small group, small team, some of the best EV engineers in the world, and it was separate from the Ford mothership," he said. "It was a start-up."

Farley said Ford's teams "are ruthlessly focused on cost and efficiency in our EV products" because the ultimate competition will be a cheaper Tesla and cars and trucks from Chinese original equipment manufacturers.

Ford's CFO: EV business 'needs to stand on its own'

John Lawler, the company's chief financial officer, said the EV business "needs to stand on its own."

"We're very clear about that," he said. "And it needs to generate a profit and a return on the capital we're investing. Now, we're not there yet, but that's what we're working toward."

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Marin Gjaja, chief operating officer for 'Model e', stressed the importance of "sticking to the capital discipline and the operating discipline around launching Gen 2 only when they can be profitable and deliver the kind of returns we want."

And "over time, that will build a stand-alone profitable EV business," he said.

Analysts reacted favorably to what they heard from the automaker, particularly about Ford Pro, the commercial vehicle division.

"We don't just lead in Pro, we dominate," Farley said. "Ford Pro is really a magical breakthrough for our customers and our company, and, I believe, the industry."

Analysts at Citibank, noting the company’s encouraging 2024 guidance, boosted their price target on Ford to $16 from $15 while affirming a buy rating on the shares.

The analysts said Ford's outlook highlights some of the story's underappreciated aspects, such as the Pro franchise, product cycle, and resilient U.S. auto demand.

Citi said it expected a favorable reaction as consensus estimates, which will likely rise as confidence around Ford's execution grows.

They aren't the only ones impressed.

Bank of America analysts raised their price target on Ford to $21 from $19, reiterating a buy rating on the shares because of solid execution and stronger-than-expected prices, especially in Ford Pro.