Ford Motor’s first-quarter earnings were stronger than expected, but analysts aren’t heaping praise on the results. Something is troubling Wall Street.
The auto maker is sticking with its financial forecasts for the full year. It expects operating profit to come in between $11.5 billion and $12.5 billion.
Analysts still have concerns because costs are rising. Ford (ticker: F) expects higher prices for raw materials to boost its commodity-related expenses by $4 billion in 2022, compared with the $1.8 billion it had predicted earlier.
Although higher prices are offsetting higher costs for Forda now, RBC analyst Joseph Spak expressed doubt that can continue. “It is price sustainability that is the concern,” Spak wrote Wednesday.
If Ford’s prices can’t continue rising, the auto maker might have one buffer. Ford sells to dealers who then sell to consumers. Those dealers’ profit margins are elevated, which Spak says would be cut first.
Ford’s profit margins could be preserved in that scenario, but Spak is still cautious. He rates Ford shares Hold and has an $18 price target.
Benchmark analyst Mike Ward is far more bullish. He rates shares Buy and has a target of $29 for the price.
Still, Ward called the results soft in a Thursday report, noting that earnings of 38 cents were down from 89 cents a year ago. But Ford, like all other auto makers, was hurt by a global shortage of semiconductors that constrained production. As a result, the company made and sold fewer pickup trucks than Ward expected.
“We believe there is a tug of war in the market between economic concerns and upside opportunity,” Ward wrote. “In our view, the auto sector is at the center of the debate, and eventually positive demand trends, structural industry changes, and improved financials will win the battle.”
Orders are still solid at Ford, a positive sign about demand. Prior restructuring efforts and a better balance sheet compared with prior economic cycles are the structural and financial changes Ward is referring to, and why he remains positive on the shares.
Overall, analysts seem to reflect Ward’s sense that there is a tug of war. Half of the analysts covering the stock rate it a Buy, while the rest rate the shares Hold or Sell. The average Buy-rating ratio for stocks in the S&P 500 is about 58%.
Analysts aren’t sure what to do with Ford stock. Neither are investors. Coming into Thursday trading, Ford stock was down about 29% year to date.
