7 Reasons Morgan Stanley Pulled Back On Ford

Ford Motor Company F is down 32.8 percent year-to-date, and Morgan Stanley doesn’t expect things to get any better.

The Rating

Analysts Adam Jonas and Armintas Sinkevicius downgraded Ford to Equal-Weight and cut their price target from $14 to $10.

The Thesis

The analysts had upgraded Ford in March, citing strategic transparency, the option to restructure and potential around sum-of-the-parts synthesis. Now, their optimism wanes.

“Like many OEMs, Ford faces a number of challenges: technology, business model, product, market positioning, and strategy,” the analysts wrote in a note. “Earnings and cash flow are under pressure and the dividend is at risk.”

They cited seven reasons for downgrade:

1. Lacking clarity around Ford’s “crucial” restructuring;
2. Stagnancy and lost ground in the Auto 2.0 segment;
3. Diminished opportunity to exit losing Chinese and South American markets and thereby capitalize on sum-of-the-parts potential;
4. Declining strategic transparency with the cancellation of last month’s investor day;
5. Deteriorating fundamentals in the critical international markets of China and Europe;
6. Estimates have declined more steeply than the share price; and
7. The heightened risk exceeds valuation upside.

These factors compound a higher multiple and increased credit risk.

“There are solutions, and management has a window of opportunity to execute,” Jonas and Sinkevicius wrote. “While we do believe investors will eventually pay for details and execution, we think the market needs more evidence of success before embracing the Ford restructuring story.”

Price Action

At time of publication, Ford shares traded down about 1 percent at $8.44.

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