By Senad Karaahmetovic
A Nomura analyst upgraded shares of Ford Motor (NYSE:F) to Neutral from Reduce with a $12.40 price target, up from the prior $11.80.
The analyst says Ford shares are no longer overvalued after a 40%+ drop since the start of the year. In addition to valuation, the analyst is also more positive on Ford stock amid better-than-expected sales performance of the all-new Bronco and Bronco Sport, and falling raw material prices.
“Offsetting these positives, we think Ford’s FY23E earnings would face headwinds from: 1) product mix deterioration for conventional ICE models as production normalizes (currently, product mix is biased in favor of large pickups); and 2) higher mix of less profitable EVs given Ford’s aggressive EV pricing and volume targets, and the impact of battery material price inflation,” the analyst further added in a client note.
On supply chain challenges, the analyst expects Ford to reach full production recovery in early 2023.
“We expect pricing to stay firm in 2H22, especially in the US, given low dealership inventory and solid demand for new vehicles. As product supplies improve in 2023, we expect net pricing to moderate. We now forecast a $1.5bn y-y tailwind from volume and mix (previously up $2.6bn) in 2022, and a $4.0bn y-y tailwind (previously $3.4bn) in 2023. We expect net pricing to be up $2.3bn y-y ($1.6bn previously) in 2022, followed by a $3.8bn y-y headwind ($3.6bn previously) in 2023,” the analyst added.
The analyst also touched on why the Ford stock price has fallen much more than the peer group. The analyst argues that a sharp pullback in Ford shares “reflects investor concerns about the prospects of a recession in the US (Ford’s main market) and its impact on automobile sales, as well as the effect of higher battery material prices on the profitability of EVs.”
Ford shares are up nearly 1% in premarket Thursday.