Wall Street couldn't be more wrong about Ford's business
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- Ford's business has arguably never been better.
- But Morgan Stanley analysts Adam Jonas thinks a massive restructuring is needed.
- Ford's challenge is to tell a story that investors will buy into, as they have with Tesla and Uber.
Ford has beaten analysts' earnings expectations every quarter of 2017 and is currently paying a whopping 5% total dividend yield. It also has almost $40 billion in cash on hand.
You might not be able to accept that the carmaker is financially well-managed, but even them any obvious weaknesses (like South America) are currently being more than offset by the company's incredibly solid and highly profitable pickup-truck business in the US.
This doesn't look like an enterprise in need of a turnaround, and even the laggy share price, down 2.5% year-to-date while peers such as GM is up over 20% and upstart Tesla is up 50%, could be seen as a buying opportunity.
But in a research note published Tuesday, Morgan Stanley analyst Adam Jonas argued that a turnaround is exactly what Ford needs.
"We think something has to give at Ford and strongly believe senior management understands the enormity of the challenges ahead," he wrote.
He then dived into 12 of what he called "restructuring" actions, including exiting the European market, exiting the South American market, effectively exiting the Chinese market by giving up Ford's joint venture there, and turning luxury brand Lincoln into some kind of Uber-copy.
Desperate moves
Many of these moves would be those of a desperate company, not one that sitting on enough cash to stay in business for a major sales downturn and that could sell close to a million money-printing F-Series pickups this year.
Jonas is one of Wall Street's more interesting thinkers when it comes to future of mobility, and he did bump his target price for Ford to $10 from $9 (shares are now trading at $12), but he's clearly a man in search of a story when it comes to Ford.
Ford's story, typically, isn't all that exciting. It rises and falls on pickups and SUVs. But those vehicles supply balance-sheet sturdiness in good times and have equipped the company to move forward with a lot of R&D and acquisitions to stay relevant in the transportation landscape of the future.
Of course, Jonas could be taking his cues from Ford's new CEO, Jim Hackett, who has focused on the need to make Ford "fit" - his term for preparing it for impending challenges.
If that includes sweeping changes of the sort Jonas recommends, Morgan Stanley's "bull" case goes to $25 per share, more than double where the carmaker is at today.
Tricky position
Ford is in a tricky position. On the one hand, it can ignore Wall Street and do nothing. The company is in no way in crisis, and even 2017 US sales now look as if they'll come in higher than expected, perhaps nearly matching last year's record of 17.55 million.
On the other hand, it can make narrative gestures in the direction that Wall Street seems to want, adjusting strategy to compete with money-losing Tesla (higher market cap than Ford, $3.5 billion is cash), as well as Uber and its alleged disruption of a personal-vehicle-ownership model that, as current sales would indicate, shows no sign of disappearing anytime soon.
Jonas thinks Ford has a limited time to do the latter. And he's right because the US sales boom has to fade at some point, and then the story will return to fundamentals, eliminating all the futuristic speculation in favor of a simple question: "Is Ford making money?"