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Ford’s Rally Is Fizzling. Don’t Worry: Its Stock Is Still a Buy.

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A Ford Mustang at a charging station during the Washington Auto Show in January. Photographer: Al Drago/Bloomberg

Al Drago/Bloomberg

Wall Street is starting to believe this is as good as it gets for


Ford Motor

stock. That might be premature.

You can’t blame analysts for wondering, given the heights shares have hit.


Ford

(ticker: F) stock rose 136% in 2021, besting the comparable returns from


General Motors

(GM) and


Tesla

(TSLA).

What is more,


Ford

stock is up 168% since CEO Jim Farley took over in October 2020. It is up 99% since Barron’s published a bullish cover story that November.

The eye-popping gains are part of the reason Wall Street is cooling on the company. At least four analysts have downgraded shares in the past few months. Most of the research reports praise management’s business execution and strategic direction while wondering if stock gains can continue at an acceptable rate.

A cautious stance has been the correct call in recent weeks. The stock is down 30% from its January 52-week high of almost $26.

Shares of


Ford
,
along with stock in other auto makers, are falling because concern has risen that profits have gone as high as they are going to. The term peak profits has crept into more than a few Wall Street reports as analysts wonder if record vehicle pricing can be sustained, while also worrying that supply chain woes, higher prices for materials and parts shortages will crimp margins.

Even electric vehicles are playing a role in the peak profit narrative. After praising EV investments announced by Ford, and others, in 2021, analysts are now asking if that spending will sap corporate cash flow and produce cars that aren’t as profitable as the gasoline powered versions they replace.

Ford can’t win for trying. Its strategic pivot into EVs is now a headwind.

The all-electric Mustang Mach E was, and is, a success. Ford is selling an all-electric Transit van and the all-electric F-150 Lightning will ship in the first quarter, about a year before Tesla and GM will have electric trucks on the road. All that progress is now feeding the peak-profit narrative.

CEO Jim Farley doesn’t agree with the grim view analysts are taking. “Our best days are in front of us….to say it simply,” Farley told Barron’s the day following his company’s fourth-quarter earnings report. He believes profit margins can keep improving even as Ford sells more EVs. And he thinks Ford can generate new revenue streams selling services and software across its customer base.

Investors, of course, would expect him to say that. He’s the CEO. But there are analysts that agree.


Credit Suisse
’s
Dan Levy is one. He believes Ford can keep improving, pointing out that Ford’s forecast of $12 billion in 2022 operating profit is up from the $10 billion reported in 2021: “Most encouragingly, the guide reflects Ford’s continued profit improvement, even against the backdrop of what some investors worried could be plateau/peak earnings.”

He rates shares Buy and has a $25 price target for the stock. Benchmark analyst Mike Ward has the stock at Buy, with a target of $29.

Stocks do best when profits, and earnings estimates, are marching higher, Ward tells Barron’s. “We have a lot of upside over the next few years.” He expects $2.25 in 2022 EPS, ahead of consensus projections of $2.06 a share.

For now, Ward and Levy are in the minority among analysts and shares reflect more fear than expectations for gains. The operating environment isn’t ideal, but vehicle demand remains solid. With the shares trading for about 9 times estimated 2022 earnings, and given Ford’s recent record of success, the stock remains a good bet.

Write to Al Root at allen.root@dowjones.com

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