BY APARNA NARAYANAN0 4:23 PM ET 04/05/2021
IBD Stock Analysis
• Ford stock is bouncing off a test at its 50-day average.
• Shares also broke a short-term downtrend, another bullish sign.
• The relative strength line for Ford stock also turned higher.
Composite Rating: 84/99
Industry Group Ranking: 105/197
Emerging Pattern: Consolidation
Ford Motor (F) is the IBD Stock Of The Day as the nation's No. 2 automaker wins converts on Wall Street with its revamp. Ford stock hit a buy range.
On Monday, Wells Fargo initiated Ford stock with an overweight rating and 15 price target. Analysts at the firm cited the pace of transformation under new CEO Jim Farley, who took the helm last October.
"The turnaround is a massive change," said analyst Colin Langan. "Ford is no longer focused on having a product for all markets, but rather focused on delivering products in segments with competitive strength — pickups and SUVs."
Under Farley, he added, Ford seems to be accelerating its shift to electric vehicles. That includes a new Mustang Mach-E electric crossover, part of "one of the strongest lineups in decades," Langan said.
Other new vehicles include a refreshed version of Ford's bestselling F-150 pickup and resurrected Bronco brand of SUVs.
In February under Farley, Ford hiked EV and AV investment commitment to $29 billion by 2025, up from about $11 billion earlier.
The Mach-E competes against the Tesla (TSLA) Model Y and Volkswagen (VWAGY) ID.4, and will soon compete against the Nio (NIO) EC6 in China. Meanwhile, archrival General Motor (GM), making a similarly ambitious EV shift, will offer its first electric SUVs, the Cadillac Lyriq and an electric Hummer, soon.
Ford Stock Technical Analysis
Shares rose 4.35% to close at 12.70 on the stock market today. Ford stock is breaking a short-term downtrend, after peaking March 15.
Recently, Ford stock found support at the 10-week moving average, which offered a buy point around 11.90. The stock is in buy range, which tops out at 13.09, according to MarketSmith chart analysis.
The relative strength line for Ford stock also turned higher Monday after cooling off since mid-March. That's when it rose to its best level since July 2019. A rising RS line means that a stock is currently outperforming the S&P 500 index.
Ford holds a Relative Strength Rating of 87 out of a possible 99. That means it has outperformed 87% of all stocks in the past year. Its IBD Composite Rating, which combines key fundamental and technical metrics in a single easy-to-use score, is a solid 84.
Ford shows two quarters of rising fund ownership. Its Accumulation/Distribution Rating of A- is the third highest among auto stocks, and a sign of heavy buying by institutional investors over the past 13 weeks.
But Ford stock earns a dull EPS Rating of 75 out of 99 and a weak SMR Rating of D, on a scale of A to a worst E.
Ford Earnings and Fundamentals
In July 2018, Ford announced an $11 billion restructuring, after a tough period marked by earnings and sales declines.
It was seen as somewhat of a laggard on EVs, while rivals such as GM and Volkswagen raced to catch up with Tesla. But under Farley, Ford's shaking off that image.
"We are accelerating all our plans — breaking constraints, increasing battery capacity, improving costs and getting more electric vehicles into our product cycle plan," Farley said Feb. 4, while announcing the $29 billion spending on EVs and AVs.
Wall Street is generally bullish about Ford's EV shift. But in the near term, the global chip shortage is a headwind to Ford earnings.
Last week, Ford slashed vehicle production at six plants in North America due to the ongoing shortage. Affected vehicles include its bestselling, highly profitable F-150 pickup truck.
The company will provide an update on the financial impact of the chip shortage when it reports for the first quarter on April 28. Previously, Ford warned it could lose 10%-20% of planned Q1 production due to the shortage, impacting 2021 earnings by $1 billion-$2.5 billion.
But SUV and truck sales are booming in North America. And so are the average prices Americans are paying for new vehicles. Meanwhile, Ford has largely exited far less profitable markets, such as passenger cars and certain international markets.
As a result, analysts expect Ford earnings to soar 161% in Q1 and 163% in 2021. That's in sharp contrast to the earnings declines seen over the past three years.
Not everyone is equally bullish about Ford's EV shift. In a note Monday, Morgan Stanley analysts suggested that Ford needs a "clearer" exit strategy out of traditional gas or diesel vehicles.
"It's not too late for Ford to stage another comeback under Jim Farley, but we believe investors should allow for a large margin of safety during what we see as a challenging transition to EVs," they wrote, rating Ford stock at underweight.
Find Aparna Narayanan on Twitter at @IBD_Aparna.