Ford's 'Fortress' Balance Sheet, Accelerated Targets Win Over Jefferies

More than half of Ford Motor Company F analysts have Holds on the stock — a fact that startled Jefferies into an upgrade.

“Rarely have we seen an OEM generate so little passion,” the firm’s analysts said Tuesday.

The Rating

Jefferies’ Philippe Houchois and Ashik Kurian upgraded Ford from Hold to Buy and raised their price target from $13 to $14.

The Thesis

Ford recently accelerated its target fitness date for an 8-percent earnings-before-interest-and-taxes margin to 2020. The change reflects higher cost-reduction targets and a $5-billion deeper capex cut between 2019 and 2022.

“OEMs rarely fail on cost cutting and, having seen its share of the D-3 NA [North American] profit pool shrink 20 points to 30 percent in the past five years, there is scope for recovery,” Houchois and Kurian said. 

At the same time, Ford has committed to adjust its vehicle mix toward crossovers and trucks rather than exit cars entirely. Jefferies expects a similar geographic strategy involving a continued global presence upheld by selective regional exposure and joint investments in Europe and Latin America, rather than a retreat from underperforming markets.

Despite Ford’s related restructuring costs, the analysts identify a unique “fortress” balance sheet that protects against cyclical risk and positions Ford to launch a mobility business.

“Ford is getting no credit for ambitious but credible cost targets and for multiple operating and strategic levers still available to improve market and product exposure." 

Price Action

Ford shares were down 1 percent at the time of publication Tuesday afternoon. 

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