Ford's Sales Fell in September. Why This Analyst Upgraded The Stock

Ford Motor's profit warning for the third quarter and macroeconomic challenges have hit the stock lately, but those concerns may be overdone, according to Morgan Stanley's Adam Jonas.

On Wednesday, Jonas raised his rating on Ford (ticker: F) shares to Overweight from Equal-Weight. His target of $14 for the stock price remained unchanged.

News that Ford's electric vehicle sales nearly tripled in September gave the stock a boost on Tuesday, overshadowing the fact that overall sales dropped nearly 9% in the same period. But the shares are still down nearly 20% over the past month, dragged lower by a weakening economic outlook and management's announcement last month that third-quarter operating profit would be up to $1.7 billion, far lower than the $2.9 billion Wall Street projected.

The pullback in the stock price could be a buying opportunity, according to Jonas. The stock now trades at around $12, or eight times the $1.50 in per-share adjusted earnings Morgan Stanley expects for the full year. Jonas expects the valuation to go to up 9.2 times, which would leave the stock very close to his target of $14.

On the other hand, he slashed the price target for General Motors (GM) shares to $30 from $42 earlier in the same note. He expects the valuation to fall to eight times his forecast of $3.71 a share in adjusted full-year earnings from the current 8.6 times.

Jonas prefers Ford shares mainly because he is confident about management's plans to overhaul the portfolio. He also cited benefits from the Inflation Reduction Act, which offers tax credits to buyers of EVs.

Ford's stock is a play on CEO Jim Farley's ability to reposition the car maker's portfolio of products to align with the needs of the EV and internal combustion engine segments. Farley, 60, who became CEO in 2020, moved Ford's EV business into a separate unit within the company earlier this year and has turned it away from economy cars toward models like the popular all-electric F-150 Lightning pickup truck.

"We have relatively less confidence that General Motors will execute a similar strategy..." Jonas said.