GM Pulls Ahead Of Ford In Just About All Competitions, Morgan Stanley Says

In the auto scene's contentious race to the top, General Motors Company GM has the edge on Ford Motor Company F, according to one analyst team.

The Rating

Morgan Stanley analysts Adam Jonas and Armintas Sinkevicius maintained an Overweight on GM rating with a $44 price target. They reiterated an Equal Weight rating on Ford with a $10 target.

The Thesis

From the start, GM differentiates itself with transparency, particularly with its offering of guidance. Ford said it wont' provide 2019 projections soon, while GM delineated expectations for $6.50 to $7 earnings per share.

“Ford announced major restructuring actions in Europe and a major alliance with VW, but did not quantify inputs and outputs that investors can translate into their models,” Jonas and Sinkevicius wrote in Thursday note.

Additionally, Morgan Stanley considers the non-capital-related Volkswagen deal relatively narrow compared to GM’s financial investment from and partnership with SoftBank and Honda.

GM also distinguishes itself with its international strategy. Most critically, it turned from the European market where Ford continues to bleed money and suffer exposure to political instability.

“Ford alluded to a potentially ‘catastrophic’ impact of a hard ‘no-deal’ Brexit,” the analysts wrote. “GM didn’t mention Brexit in its presentation at all.”

Instead of Europe, GM has directed its international focus to the coveted Chinese market, where it boasts a superior fundamental position.

Better Aligment

At the same time, management has aligned itself to better profit from the utility segment, gotten an early lead in mid-size pickups and demonstrated foresight with electric vehicles by prioritizing pure battery EVs over hybrids.

“Ford’s electrification strategy appears highly dependent on hybrids, which investors increasingly see as having minimal useful life and cities/regulators view with increased scrutiny,” Jonas and Sinkevicius wrote. “GM’s strategy is much more attuned to that of a ‘clean sheet’ approach of a Tesla Inc TSLA or the upcoming crop of startups.”

At the end of the day, GM reports higher margins and cash flow, but this factor isn’t even as important as the people generating and working to sustain the lead. Morgan Stanley praised GM’s diverse and experienced board and leadership team to Ford’s family-controlled model.

“We see a path to improvement for Ford, but believe the situation may need to get worse before it gets better and continue to see scope for some potential up-front sacrifices (dividend, credit rating, balance sheet position,and other items) that are frequently required to move large auto firms,” the analysts wrote. “Ford has been here before and we believe has every opportunity to improve its fortunes under the right combination of leadership and strategy.”

Price Action

At time of publication, Ford traded at $8.29, and GM traded around $37.99.

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