Ford Analysts React To Earnings: 'Potential Liquidity Crunch Looming'

Ford Motor Company F shares traded lower on Wednesday morning after the company said it burned through $2.2 billion in cash in the first quarter and is expecting a $5 billion loss in the second quarter.

Ford reported first-quarter revenue of $34.3 billion, down 14.9% from a year ago. Ford said the company has $35 billion in cash on its balance sheet, enough to get it through the rest of 2020 with zero production, if necessary.

Massive Losses

CFRA analyst Garrett Nelson downgraded Ford from Hold to Sell and said the $5 billion second-quarter loss guidance was much worse than the $3 billion loss Wall Street had anticipated.

“We expect monthly auto sales to bottom in April, but do not anticipate a sharp rebound and therefore recommend selling F shares after a 35%+ bounce from its March low and with a potential liquidity crunch looming as its cash burn accelerates,” Nelson wrote in a note.

CFRA also cut its full-year 2020 EPS loss estimate from -80 cents to -$1.00.

Surviving The Crisis

Morgan Stanley analyst Adam Jonas said he’s confident Ford has the liquidity to navigate the coronavirus (COVID-19) crisis, but it’s not clear what the investment case is for Ford once things start getting back to normal.

“Ford has demonstrated access to capital, but has not convinced investors how the $ can improve the business,” Jonas wrote.

Still, Jonas is optimistic Ford can survive 2020 break even in 2021 and eventually reach 3.5% EBIT margins.

Bank of America analyst John Murphy said the second quarter will be even tougher for Ford than the first, but the company’s balance sheet improvements have it positioned to eventually come out the other side of the crisis as a stronger company.

“We believe the unprecedented market pressure has likely catalyzed Ford’s planned restructuring and cost reduction efforts, while a renewed focus on higher mix and franchise product coming out of the sales/production trough will help support price and margin,” Murphy wrote.

He said Ford’s primary near-term focus will be on re-starting production, right-sizing its cost structure and managing its product portfolio.

Ratings And Price Targets

• CFRA has a Sell rating and $4 target.
• Morgan Stanley has an Overweight rating and $7 target.
• Bank of America has a Buy rating and $7 target.

Ford's stock traded around $5.40 per share at time of publication.

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Ford CEO Jim Hackett, right, with Executive Chairman William Ford Jr. in Detroit. Benzinga file photo by Dustin Blitchok.