Analyst: Ford's Turnaround Still Stuck In Neutral

RBC Capital Markets watches the auto race from the sidelines.

The research firm has a Hold on General Motors Company GM, the most likeable automaker on the Street, and a Hold on Tesla Inc TSLA, which some consider the industry frontrunner.

On Monday, it slapped the same rating on Ford Motor Company F.

“Net, while we believe new CEO Jim Hackett has a solid long-term vision, it is very early in the turnaround and we think little can change over the coming years (making F subject to cycle),” analyst Joseph Spak said in a note. RBC downgraded Ford to Perform with a $13 price target.

Following The Leader

The earlier Outperform rating built on poor Street expectations, relatively attractive production rates, and the potential to profit from a border-adjusted tax.

While the tax reform has yet to actualize, Hackett’s appointment bolstered RBC’s turnaround thesis. The CEO committed to shaving $14 billion in materials and engineering, refocusing Ford on its profitable units, emphasizing higher-priced cars at lower volumes and shifting $7 billion from cars to trucks and utility vehicles.

“We believe these are the right steps, but they also don’t necessarily differentiate Ford from what other OEMs are doing,” Spak wrote. “Ford’s ideas on connected vehicles and services in the future of mobility are interesting but very high-level. More specifics and a flush-out of the ideas are needed.”

He expects not to see material impact from Hackett’s efforts until 2019 or 2020.

Cruising The Street

RBC predicts third-quarter earnings per share of $0.30 against the Street’s $0.32 and, considering no production of Navigators or Expeditions, models for a slight year-over-year decrease in North American pre-tax profit.

“We believe 2H17 appears healthy, with expectations appropriately set, with a possible tailwind from strong replacement demand from hurricane-impacted areas,” Spak wrote.

Despite “attractive” valuation and dividend yield, he considers 2018 EPS estimates about 8 percent too high driven by undue optimism in pre-tax margin recovery.

At time of publication, Ford was trading at $12.09.

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