Daiwa boosts estimates on Ford (F), sees potential in Ford Pro segment

Daiwa upgraded Ford Motor (NYSE: F) to a Neutral rating (From Underperform) and reiterated their 12-month price target of $12.00 for the stock after attending the automaker’s Investor Day, held over May 21st-22nd.

The presentations delivered by segment leaders primarily focused on strategies aimed at attaining mid-term margin goals. Notably, the Ford Pro division stood out due to its robust market position, diversified end markets, and the potential to generate recurring revenue.

Analyst, Jairam Nathan wrote in a note, “While a lot of focus is on Model e segment’s path to profitability, we see Ford Blue driving risks to near-term earnings. Ford Blue is modeling a 6% headwind from pricing between 2022 and 2026, which the segment hopes to offset through cost reductions. Pricing headwinds could precede cost reductions, pressuring margins in 2023-2024.”

Ford’s EV product strategy is to be selective, focused on segments of strength and low competition. As a result, the company does not have any plans to introduce a two-row crossover beyond the Mustang Mach E. Instead, approximately 40% of Ford's EV lineup will be allocated to the Pro business. Ford anticipates that the Model e's margin will reach 8% through a combination of economies of scale, reductions in battery costs, and enhancements in design and engineering efficiency. The key drivers for achieving higher margins include the implementation of Gen 2 platforms and improved contribution margins on Gen 1 platforms.

Daiwa raised their 2023 EPS estimates to $1.80 (From $1.70) reflecting a resilient industrial economy potentially driving stronger performance at Ford Pro. They are maintaining their 2024 EPS estimate of t $1.65, reflecting a $0.7bn decline in EBIT to $9.8bn.

“We expect a $1.7bn decline of EBIT in Blue as we model all of the 6% pricing decline to happen through 2024 while cost reduction offsets take longer.” Writes Nathan.

Shares of F are up 1.63% in morning trading on Thursday.

By Michael Elkins | [email protected]

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