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Ford Stock: Is there Additional Upside Following the Recent Rally?

Story Highlights

Ford stock has been trending higher since the automaker announced stellar second-quarter results last week. However, many Wall Street analysts are cautious about the stock due to near-term pressures and see limited upside potential.  

Shares of auto giant Ford (NYSE: F) have rallied nearly 36% over the past month and are up over 16% since the company announced its second-quarter results last week. That said, the stock is still in the red on a year-to-date basis due to macro headwinds. Ford smashed analysts’ expectations for the second quarter and reaffirmed its full-year guidance, despite supply chain snags and macro challenges. Moreover, the company hiked its quarterly dividend to $0.15, bringing it back to pre-pandemic levels. However, most Wall Street analysts are on the sidelines and see limited upside in the stock price from current levels.

Ford’s Reorganization Will Ensure Future Growth

Ford is reorganizing its business into three automotive business units, Ford Blue – focused on the legacy internal-combustion vehicles (ICE), Ford Model e – focused on electric vehicles (EVs), and the development of connected vehicle technologies, and Ford Pro – dedicated to commercial vehicles.

Ford’s reorganization efforts will help it accelerate the development and production of EVs. The company is experiencing strong demand for its first-generation EVs – the Mustang Mach-E SUV, the F-150 Lightning pickup truck, and the E-Transit van. The company is on track to reach an annual run rate of 600,000 EVs by the end of 2023. Furthermore, Ford is working toward producing 2 million EVs annually by late 2026.

Given the shortage of battery supplies faced by EV makers, Ford has secured 70% of the battery capacity needed to support its 2026 production goal. The company is also focused on improving its productivity and aims to deliver an overall adjusted EBIT margin of 10% and an EV EBIT margin of 8% by 2026.  

Majority of the Analysts are on the Sidelines

Following the print, Deutsche Bank analyst Emmanuel Rosner increased his price target for Ford stock to $13 from $12 and maintained a Hold rating. Rosner feels that the company’s Q2 results reflected solid operational execution backed by improved volumes and continued pricing benefits. However, the analyst pointed out that the earnings beat was also due to one-time gains in the range of $300 million to $400 million, exceptionally robust volumes, and a favorable mix.

Meanwhile, Benchmark analyst Michael Ward lowered his price target for Ford stock to $23 from $25 but maintained a Buy rating. Ward increased his 2022 estimates to reflect the upbeat Q2 performance. However, the analyst lowered his 2023 estimates due to lower expected earnings from Ford Credit.

Overall, Ward expects Ford and the broader auto sector to outperform the global economy over the next 1 to 2 years based on a better cost position, competitive products, a strong balance sheet, and robust demand.

On TipRanks, the Street has a Hold consensus rating based on five Buys, 11 Holds, and one Sell. The average price target of $16.02 implies 4.43% upside potential from current levels.

Conclusion

Like other automakers, Ford is exposed to near-term headwinds, including supply chain issues and macro challenges. Following the recent rally in Ford stock, several analysts see limited upside potential and prefer to remain on the sidelines. That said, Ford’s aggressive investments to ramp up its EV business are expected to drive its long-term growth.

As per TipRanks Smart Score System, Ford earns an eight out of 10, indicating the stock could outperform the broader market.  

Disclosure 

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