Ford's Optimistic Tone Lifts Shares as Analysts See Bumpy Future

(Bloomberg) -- Ford Motor Co.’s optimistic tone in its fourth-quarter results brought some relief to ease what had been heightened investor concerns, but Wall Street on balance remains far from convinced.

A lack of concrete details around Ford’s turnaround and its outlook for this year are likely to keep investors from the stock, analysts said, while also flagging potential risks to Ford’s credit rating.

Ford shares were swinging between a loss of as much as 1.4 percent and a gain of 2.4 percent in early trading Thursday.

Here’s a round up of the analyst comments post the results.

Morgan Stanley, Adam Jonas

“While Ford may be the only major OEM not to offer a formal 2019 guide, we found management’s tone on the 4Q call to be surprisingly optimistic...emphasizing views of continued strong price/mix, warranty/cost tailwinds...and a ‘clear improvement’ in Auto EBIT.”

“The only items management clearly called out that get worse in 2019 include an expectation of higher product costs (which moves with higher mix and launches), modestly lower Finco profit, and higher costs at Mobility.”

“We continue to see Ford as an emerging turnaround story, but still believe investors are waiting for a more significant ‘capitulation’ in results (i.e. – a significant downward reset), a potential downgrade in the credit rating, a potential cut in the dividend, or further transparency on strategy before increasing exposure.”

“It’s too early to turn positive on Ford.”

Rates Ford equal-weight, price target $10.

BMO, Richard Carlson

“There is certainly significant value buried in Ford shares, though we are in no rush to buy them with market uncertainty still high (evidenced by management’s reluctance to provide specific guidance) and heavy lifting still required to remove barriers to better performance.”

“We remain cautious on the shares, and as we believe new money going into auto today should be steered towards companies that already have earnings momentum.”

Rates market perform, price target $8.50.

Evercore ISI, Chris McNally

“Details provided support a stronger N.A. 2019 margin (if warranties subside although Ford sounded only ‘cautiously optimistic’ on that front) but Asia Pacific/Europe loss recovery will be a second half, macro driven upturn question.”

Rates in line, price target $9.

Buckingham, Joseph Amaturo

“Given the favorable mix and pricing environment Ford enjoyed in N.A. during 2018, it is alarming how little has flowed through to automotive earnings and auto cash flow.”

“Clearly, its international automotive business remains challenged and could experience further deterioration in 2019, notably Europe and China sales, where Ford is off to a slow start.”

“We believe the current downside/upside risk reward in the stock is $7/$9 and believe Ford is among the most vulnerable OEMs in an economic downturn scenario, which could eventually compromise its investment grade credit rating.”

Rates neutral, price target $8.

Deutsche Bank, Emmanuel Rosner

“As previewed, Europe and China losses dragged down reported 4Q Ebit below Street expectations, and North America Ebit margin of just 7.6% was somewhat below” estimates.

“The main surprise to us was that North America Ebit of $2 billion was actually ahead of our/consensus estimate of $1.8 billion/$1.9 billion, driven by considerably higher revenue in the quarter.”

Rates buy.

Bloomberg Intelligence, Joel Levington

“Ford’s commentary that it views its investment grade rating as ‘ground zero’ and more of a linchpin to its financial policies than its dividend should support risk views.”

“Until it can become consistently profitable in China and other regions outside of North America, the company’s business risk will pressure its high grade status.”

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