Morgan Stanley downgrades Ford; investors shrug
Ford Motor Co. shares shrugged off a downgrade by Morgan Stanley on Friday, after the investment bank said the carmaker's earnings and cash flow are under pressure and its dividend is at risk.
Morgan Stanley analyst Adam Jonas decreased Ford's $14 overweight price target (a "buy" rating) to $10 equal-weight (essentially, a "hold" rating). He said in a note that investors are cautious of the No. 2 U.S. automaker, saying it lacks transparency and action on its $11-billion global restructuring plan, and has fallen behind competitors in its electric and self-driving vehicles ventures.
"While we do believe investors will eventually pay for details and execution," he wrote, "we think the market needs more evidence of success before embracing the Ford restructuring story."
Ford spokesman Bradley Carroll said the company is moving with a sense of urgency to restructure its business.
"We will capitalize on our strengths, bolster underperforming products and regions, and selectively and smartly disposition where we cannot make an appropriate return," he said in an email. "We’re confident that over time, the market will recognize our progress."
The Dearborn-based automaker's stock closed at $8.50 in trading Friday, down a penny from the day's open. The market was mixed Friday, with the Dow Jones Industrial Average slightly up and the S&P 500 slightly down. General Motors Co. was up 12 cents to $31.20, while Fiat Chrysler Automobiles N.V. rose 2 cents to $15.51.
The downgrade comes after the Blue Oval's stock closed below $9 per share for the first time in six years earlier this month. Moody's Investor Services in August downgraded Ford to one step above junk bond status.
Ford shares are off about 20 percent since CEO Jim Hackett took over in May 2017. Company officials have said that a planned $25.5 billion in operational cost cuts, including global layoffs to its white-collar workforce, and its restructuring don’t amount to a crisis. Senior leadership is pushing to get North American profit-margin back to 10 percent — it was at 7.4 percent in the second quarter of 2018.
Hackett and his team say they are getting Ford ready to brave the next downturn, whenever it comes, and a future with more electric cars and self-driving vehicles.
To that end, Jonas recognized Hackett as a "visionary leader" whose long-term approach may not bring about the turnaround timeline investors expect.
"[W]e have a reasonable level of confidence in Ford management," Jonas wrote, "but are concerned that the movement in fundamental market factors may dominate the investor debate for the next 12 months, and could create a better opportunity to revisit the stock at an improved valuation risk-adjusted return."
Staff Writer Ian Thibodeau contributed.