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The wins keep piling up for Ford (F).
Impressive orders for the new electric F-150. Ford scion Bill Ford buying a slug of stock in a show of confidence. This week the auto giant's market cap burst through $100 billion, while crosstown rival GM (GM) stays stuck in neutral at about $89 billion. Despite these grabby headlines, long-time auto analyst Adam Jonas of Morgan Stanley thinks Ford shares have gotten ahead of themselves.
How ahead? The veteran number cruncher said in a new note he sees Ford shares plunging 52% to $12. His rating on one of the hottest stocks in the market? Underweight, or the equivalent of Sell.
"The stock market’s attraction to the Ford EV story continues to take us by surprise," Jonas acknowledges.
Wall Street's newfound bullishness on Ford's stock reflects the ongoing operational turnaround at the company under CEO Jim Farley and Executive Chairman Bill Ford's push for greener automobiles. Solid third quarter earnings for Ford helped, too.
Ford's third quarter adjusted earnings came in at 51 cents a share, trouncing analyst estimates for 27 cents. Net sales of $33.2 billion beat analyst projections by about $800 million despite the semiconductor shortage crimping production levels.
For the full year, Ford estimates adjusted profits of $10.5 billion to $11.5 billion. Previously, Ford expected earnings of $9 billion to $10 billion. The company also reinstated its dividend, which it had cut at the height of the pandemic in 2020.
Jonas contends most of these factors are now priced into Ford's stock, a stock that has skyrocketed 155% in the past year. On the other hand, there are a host of downside risks on Ford shares the market may be forgetting about per Jonas' math.
"Our concerns begin with cyclical mean reversion. This is not just a Ford problem, but sector-wide. While auto firms will enjoy production recovery and inventory restocking, we believe this will be coupled with price declines, mix deterioration (channel and product) and rising input costs," says Jonas. From a $25 level, we believe expectations for Ford’s success in EVs, while possible to achieve, are difficult to exceed. We expect a far more intense environment of competition amongst EVs from the likes of Tesla, Rivian, legacy OEMs and other startups."
But even Jonas concedes Ford's stock could maintain its bullish bias in the near-term.
"The window of opportunity for the stock to enjoy a combination of a supportive cycle, strong ICE profitability (peak pricing and mix) as well as the promise and excitement of upcoming EV launches may continue through the first half of this year," Jonas adds.
In other words, don't rule out more wins.