A 3% move higher on Thursday meant that shares of Ford (NYSE: F) closed above their June high and logged their highest close since 2015. It’s been a remarkable eighteen months for the automotive stalwart whose shares, prior to the pandemic, was caught in a multi-year year downtrend. But for investors who were brave enough to initiate a position in March and April of last year, the story couldn’t be more different.
Ford’s shares are now more than 300% higher and showing all the signs of wanting to continue the move north. Their Q3 earnings are due out next week, and on the back of yesterday’s pop, you’d be inclined to say the smart money is already getting into place for a solid beat.
That was exactly the theme that J.P. Morgan shared in a note to clients yesterday. Analyst Ryan Brinkman and his team noted how “Ford production in Q3 appears to have tracked materially better than for the industry as a whole by showing a 36% sequential increase from Q2. The firm also estimates Q2 adjusted EBIT of $1.8B for Ford (F) vs. $1.0B in Q2. The automaker is seen benefiting from both the strong pricing environment as well as relatively more solid production figures. EPS of $0.32 is anticipated vs. $0.25 consensus.”
They’re expecting shares to hit $20, suggesting there’s upside of at least 20% to be had from Thursday’s closing price. $20, were it to be hit, would also put shares at their highest levels since 2001. So what’s behind this rally that looks set to continue for some time yet?
Well, the company has made some extraordinary gains in the electric vehicle (EV) space since pivoting its focus towards that in the past few years. While Tesla (NASDAQ: TSLA) may have had first-mover advantage, it could be said that Ford is leading the following pack. The momentum seen in the EV space, and Ford’s sales numbers specifically, is impressive, albeit it comes at a cost. Ford’s US sales fell 17.7% year on year in September’s numbers, with their Cars segment down 80% alone. The positive spin on this though, and what’s clearly pulling in investors, is that their EV sales almost doubled over the same time period.
Bank of America reiterated their Buy rating on the stock last month in light of these numbers, with analyst John Murphy noting at the time that he “believes under its Ford+ strategy, the company is on the verge of executing something analogous to our Core to Future framework, by which it will strengthen its core business pillars to fund its future business". Their price target of $18 also suggests there’s plenty of room yet for Ford shares to stretch their legs.
While it’s very sweet for those who’ve been involved in the stock for some time, those of us on the sidelines might be forgiven for thinking we’ve missed most of the run. It has to be said, based on the stock’s relative strength index at least which is well above 70, shares are definitely looking a little overheated. The risk here is that even if the company registers a solid beat next week with their earnings, they mightn’t beat by enough to justify the 30% run up that shares have seen in the past month.
A “buy the rumor, sell the news” kind of move could well be on the cards. If that is what ends up happening, it’s hard to see Ford shares falling very far before the long-term bulls start snapping up stock at what could be considered discount pricing. It would take a dirty miss to send shares back towards $12, and anything below $14 is probably a solid long-term entry point. There’s no doubt that the EV space is continuing to heat up, with Tesla shares acting as the industry bellwether and trading within cents of a fresh all-time high. Ford has phenomenal brand loyalty and is well-positioned to mark out a sizable territory for itself, regardless of what next week’s numbers say
Ford Motor is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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