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UpgradeMorgan Stanley upgrades Ford to 'Overweight', tempers expectations for GM
Morgan Stanley analyst Adam Jonas voiced his preference for Ford Motor Company (NYSE:F) over General Motors (NYSE:GM) as the preferred automaker in Detroit in a note on Wednesday. Jonas noted that Ford’s third quarter warning stood to price in much of the downside risk, while significant investment in EVs should pay dividends in the longer term. “Potentially favorable idiosyncratic development regarding the company’s restructuring (creation of Ford Blue and Ford Model e) has the potential to better align the growth and capex needs of the EV business with a more favorable cost of capital,” he wrote on Wednesday. “In our opinion, the move is far more significant than a mere accounting exercise.” Jonas added that a favorable regulatory environment and support of the Inflation Reduction Act should also serve as tailwinds. To be sure, he clarified that the shift to “Buy” is “not meant to convey a recession-bottom buy signal” given the potential for dire bear case scenarios. Still, the nearly 20% decline in shares over the past month justifies a more bullish outlook based on valuation, in Jonas’ view. In the note, Jonas not only upgraded Ford to a Buy-equivalent rating from a prior Neutral, but lowered estimates for GM (GM) and trimmed his price target on the name. Specifically, he said that the “business portfolio and strategy” of Ford is preferable to GM, especially as he views GM’s Cruise and China businesses pessimistically. “We’ve moved the valuation of GM China to zero in our SOTP and in our normalized EPS valuation. We believe the market may have already done this for us, but we wanted to align our forecast with the view of a zero NPV GM China valuation given domestic competitive EV pressure and stranded ICE assets in the country,” Jonas explained. “We have completely removed GM Cruise from our valuation.” He noted that while the technology at Cruise is promising, its annual loss run rate of $2B per year is problematic. Further, he expects losses to accelerate in the near term. As such, Jonas cut his price target on GM (GM) from $40 to $32 and reiterated a “Neutral” rating on the stock. Jonas also retained a $14 price target on Ford (F). Shares of Ford (F) rose 1.54% in premarket action, while General Motors (GM) stock declined 2.21%. jmat |
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