In the past year, analysts have started liking Ford (F) stock.
What has changed with Ford stock?
In August 2018, 22 analysts covered Ford. Among the analysts, four or 18% recommended a “buy” or “strong buy,” 16 or 73% recommended a “hold,” and two recommended a “sell” or “strong sell.” So, most analysts adopted a wait-and-see approach amid the company’s restructuring phase.
Last year, Ford announced its $11 billion global restructuring program, which would last three to five years. The company aimed to reallocate the capital to high-return segments and leverage its partnerships globally. Ford also focused on regional restructuring.
More analysts like Ford stock
Currently, seven or 39% of the 18 analysts have recommended a “buy” or “strong buy,” ten or 56% recommended a “hold,” and one recommended a “sell.” Analysts’ mean target price on the stock is $10.7, which implies 20% gains from the current level.
Although most of the analysts still rate Ford stock as a “hold,” more analysts have a favorable opinion on the stock. Analysts like Ford stock due to positive results from its restructuring program.
In the second quarter, Ford’s automotive EBIT rose 19% YoY due to better net pricing. Also, the company’s EBIT outside North America rose 46% YoY due to restructuring exercises in China and Europe. Changes in the product portfolio increased North America’s revenues by 1%. With the improved performance, we’ll see how the company is redesigning its global position.
Ford’s restructuring exercise in China
China is an essential market for Ford in terms of profitability and growth. As a part of a restructuring exercise in the Asia-Pacific region, Ford made its China arm a stand-alone unit. The unit would report to global headquarters. Notably, Ford expects to increase its foothold in China—the world’s largest vehicle market.
Ford’s former president of Global Markets, Jim Farley, said, “As we transition China to a stand-alone business unit, led by an experienced and talented Chinese business leader, we can become more fit as a business, increase our decision-making speed and be closer to our customers.”
This year, Ford planned to launch ten new Ford and Lincoln vehicles in China. Also, he company plans to launch 30 more vehicles by 2021. Ford will also lay a strong base for growth with attention on the right products like the new Territory and Focus. Recently, Ford changed the leadership at its China unit. Read Will Ford’s China Leadership Change Help? to learn more.
Product portfolio redesign in North America
In North America, Ford decided to focus more on high growth segments as well as electric and autonomous vehicles. The company plans to launch 20 new Ford and Lincoln vehicles in North America in the next two years. Ford plans to replace 75% of its product portfolio in the region. The company shifted its focus to SUVs and pickups from traditional sedans.
Ford also plans to be a leader in the autonomous car segment with its Ford Smart Mobility. To learn more, read Autonomous Cars: Ford and Tesla Have Big Plans.
Ford focuses on commercial vehicles in Europe
In Europe, Ford decided to redesign its portfolio to improve its profitability and returns. Ford is one of the highest-selling commercial vehicle brands in the region. The company targets three primary business segments in Europe—commercial vehicles, passenger vehicles, and imports.
Ford of Europe’s president, Stuart Rowley, said, “Implementing our new strategy quickly enables us to invest and grow our leading commercial vehicle business and provide customers with more electrified vehicles, SUVs, exciting performance derivatives and iconic imported models.” Ford stock will likely benefit from the company’s restructuring plan.
Ford plans to redesign its South American business
In South America, Ford decided to optimize its strengths, reduce costs, and improve efficiency. The company decided to exit the commercial heavy trucks business in the country. Ford decided to shut production at the São Bernardo do Campo plant in Brazil this year. The move would end the sales of the Cargo lineup, F-4000, F-350, and Fiesta. Ford plans to strengthen its SUV and pickup business portfolios in the region.
Ford’s strong earnings outlook
Analysts expect Ford to benefit from the current restructuring exercise. They expect Ford’s earnings to rise 8% in 2020 and 18% in 2021. By that time, Ford would have completed most of its restructuring exercise, which would drive its earnings growth.
So, more analysts have started liking Ford stock. They can see the company’s earnings growth from the restructuring program.
Peers’ ratings and target prices
General Motors (GM) is rated as a “buy” or “strong-buy” by 14 of the 19 analysts covering the stock. The company’s mean target price of $48.2 implies a 32% gain from the current level. Ferrari (RACE) and Fiat Chrysler Automobiles (FCAU) are rated as a “buy” or “strong-buy” by eight of the 12 and two of the four analysts, respectively. Ferrari and Fiat Chrysler’s target prices at $170.2 and $18.3 imply 8% and 41% gains, respectively. Tesla (TSLA) is rated positively by ten of the 31 analysts. The company’s mean target price of $252 implies a 17% gain from the current level.