Longtime Bear Morgan Stanley Says Finally Time To Buy Ford

Shares of Ford (F) are on the rise after Morgan Stanley analyst Adam Jonas double upgraded the stock to Overweight from Underweight as he believes a “window of opportunity” has opened up, with consensus bottoming and the stock having reached attractive valuation levels amid low sentiment. The analyst believes restructuring and strategic redeployment could halt years of underperformance.

BUY FORD: In a research note this morning, Morgan Stanley’s Jonas upgraded Ford to Overweight from Underweight, where he has had his rating since 2014. The analyst told investors that sentiment on Ford has reached a cyclical low, with the skew of negative sentiment taking valuation to attractive levels. Jonas pointed out that he estimates the F-150 franchise could be worth more than 150% of the company’s enterprise value. Further, he thinks there are a few “blind spots” in the investment debate, namely the optionality to continue U.S. seasonally adjusted annual rate strength and restructuring savings including the elimination of products and/or regions the management team determines are not capable of generating a sustainable return over a cycle. While Ford still has a lot of room to improve its performance compared to peers, estimates may have bottomed, Jonas contended, adding that the company’s 2018 guide down has substantially narrowed the gap to his forecasts. The analyst raised his 2018 earnings per share estimate to $1.44 from $1.40 and 2019 earnings per share to $1.26 from $1.06 on his SAAR forecast increase, tax reform impact, and more supportive than expected auto credit. Jonas also raised his price target on Ford’s shares to $15 from $10.

AUTO SALES FORECASTS: In a separate research note, Morgan Stanley’s Jonas raised his U.S. SAAR forecast for automakers by an average of 850,000 units from 2018 through 2021, which represents slightly more than a 5% increase from his prior forecast. However, his average U.S. SAAR forecast is still well below last year’s 17.3M units and 8% under the cyclical high of 17.6M units in 2016. Jonas pointed to U.S. tax reform and “relatively stable” recent trends in auto sales and credit as reasons for the hike, noting that while infrastructure action from the federal government could be a material positive, it is not explicitly in his new forecast. In addition to Ford, Jonas raised his price targets on General Motors (GM), Asbury Automotive (ABG), AutoNation (AN), Group 1 Automotive (GPI), Lithia Motors (LAD), Penske Automotive (PAH), and Sonic Automotive (SAH).