Ford Shares Rally On Q2 Earnings: Key Conference Call Takeaways And Why This Analyst Is Sounding Caution

Zinger Key Points
  • Ford benefited by strong pricing and mix, Morgan Stanley analyst Adam Jonas says
  • Depleted inventory levels are helping automakers currently but things could change in 2023
  • As supply-demand gap rebalances, margins could contract & cash flows reduce

Ford Motor Company F shares are on track to breach the $14 mark for the first time in over a year after the U.S. automaker reported second-quarter results that exceeded estimates.

The Ford Analyst: Morgan Stanley analyst Adam Jonas maintained an Equal-Weight rating and $13 price target for Ford shares.

The Ford Thesis: Strong pricing and mix contributed to the second-quarter outperformance relative to estimates, Jonas said in a note. The company reiterated its 2022 adjusted EBIT and adjusted free cash flow guidance of $11.5 billion-$12.5 billion and $5.5 billion-$6.5 billion, respectively, he added.

The guidance reiteration, according to Jonas, reflected the language of a major auto player that is sold out of inventory through the rest of the year, with unusual visibility of order backlog.

Automakers are sounding optimistic currently, mainly due to a lack of inventory, Jonas said. The analyst sees this changing in 2023.

The reiteration of the 2022 wholesale shipment forecast by both Ford and General Motor Corporation GM points to the beginning of a supply chain “thaw,” the analyst said. As supply-demand gets rebalanced, companies may see lower margins, lower cash flows, and pushed-out EV spend, and the sector will then offer a more attractive entry point, he added.

Although EV market provides some optionality to Ford, the direction of Blue Oval’s forecast is “very much tied to what remains of the useful life of the ICE product range,” Jonas said.

Related Link: How To Trade Ford Stock Before And After Q2 Earnings Print

Benzinga’s Key Takeaways From Ford’s Earnings Call:

  • Ford’s first-gen EVs – the Mustang Mach-E, F-10 Lightning and E-Transit, have strong multi-year order books.
  • EV production run-rate could hit 60,000 units by end-2023.
  • EV growth rate through 2026 will likely be more than twice of the overall global EV industry.
  • Ford has secured 70% of the battery capacity needed to support the goal of producing two million units by the end of 2026.
  • Ford’s Jim Farley reiterated the company’s competition is not legacy OEMs but pure-play EV startups, including Chinese companies.
  • SaaS revenue will be deferred on the balance sheet, providing a highly-accretive annuity-like revenue stream.
  • A new seventh-gen Mustang will be unveiled at the Detroit Auto Show in the third quarter. It also plans to launch a new Super Duty pickup this fall.
  • Ford’s Rivian Automotive, Inc. RIVN stake is valued at $2 billion at the end of the quarter.
  • The company quantified commodity headwinds and the impact of broader inflationary pressure at $3 billion, up from $3 billion estimated last quarter.

Ford Price Action: Ford shares were seen rising 5.91% to $13.97 in premarket trading on Wednesday, according to data from Benzinga Pro.

Actual EPS
EPS Surprise
Actual Rev
Rev Surprise
Posted In: Analyst ColorEarningsNewsReiterationAnalyst RatingsAdam Jonaselectric vehiclesEVsJim FarleyMorgan Stanley