Ford new Buy at Bernstein amid 'clear path to significant operating leverage'

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Ford new Buy at Bernstein amid 'clear path to significant operating leverage'
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Bernstein initiated coverage on shares of Ford Motor (NYSE: F ) on Thursday with an Outperform rating and a 12-month price target of $16.

Analysts said the automotive giant continues to reap strong profits from its core markets and highlighted the potential for substantial operating leverage in its electric vehicle (EV) unit.

According to Bernstein, Ford is poised to achieve the upper range of its adjusted EBIT guidance for the fiscal year 2024, which is between $10 billion to $12 billion. The firm's analysts are projecting a 15% upside to the consensus EBIT estimates and a 17% increase over the adjusted earnings per share (EPS) consensus for 2024.

These expectations are “driven by a model refresh in the U.S., fewer losses in Model e and better cost control in the wider business,” analysts noted.

Bernstein's outlook is also buoyed by the anticipated operating leverage in Ford's Model e division and a robust industrial cycle in its Pro segment, factors which analysts believe will help Ford counterbalance pricing challenges in both the U.S. and international markets.

“This translates to c. $12b and $11.6b adj. EBIT for 24e and 25e, respectively. Once Ford phases in its Gen-2 EV platforms, we see additional upside as losses on EVs turn into profits,” analysts added.

Moreover, Bernstein reflected on the company’s potential to benefit from its next-generation EV platforms, which could transition losses from its EV operations into profits. While acknowledging the risk of unexpected cost control or growth in the Pro segment, analysts pointed out that the main downside risk in the near term is cyclical, with medium-term risks including the challenge of adapting to faster-than-anticipated EV market growth.

“We would expect management to narrow its ‘24 guidance and to update markets with new (and hopefully more realistic) long-term targets. Both signals could act as meaningful catalysts for the stock,” analysts concluded.

Ford shares climbed 0.75% in premarket trading. Overall, Wall Street's sentiment toward the stock is mixed, with 13 analysts rating it as a Buy, 21 as Neutral, and 4 as a Sell.

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