Shares of auto giant Ford (NYSE: F) have rallied nearly 36% over the past month and are up over 16% since the company announced its second-quarter results last week. That said, the stock is still in the red on a year-to-date basis due to macro headwinds. Ford smashed analysts’ expectations for the second quarter and reaffirmed its full-year guidance, despite supply chain snags and macro challenges. Moreover, the company hiked its quarterly dividend to $0.15, bringing it back to pre-pandemic levels. However, most Wall Street analysts are on the sidelines and see limited upside in the stock price from current levels.
Ford’s Reorganization Will Ensure Future GrowthFord is reorganizing its business into three automotive business units, Ford Blue – focused on the legacy internal-combustion vehicles (ICE), Ford Model e – focused on electric vehicles (EVs), and the development of connected vehicle technologies, and Ford Pro – dedicated to commercial vehicles.
Ford’s reorganization efforts will help it accelerate the development and production of EVs. The company is experiencing strong demand for its first-generation EVs – the Mustang Mach-E SUV, the F-150 Lightning pickup truck, and the E-Transit van. The company is on track to reach an annual run rate of 600,000 EVs by the end of 2023. Furthermore, Ford is working toward producing 2 million EVs annually by late 2026.
Given the shortage of battery supplies faced by EV makers, Ford has secured 70% of the battery capacity needed to support its 2026 production goal. The company is also focused on improving its productivity and aims to deliver an overall adjusted EBIT margin of 10% and an EV EBIT margin of 8% by 2026.
Majority of the Analysts are on the SidelinesFollowing the print, Deutsche Bank analyst Emmanuel Rosner increased his price target for Ford stock to $13 from $12 and maintained a Hold rating. Rosner feels that the company's Q2 results reflected solid operational execution backed by improved volumes and continued pricing benefits. However, the analyst pointed out that the earnings beat was also due to one-time gains in the range of $300 million to $400 million, exceptionally robust volumes, and a favorable mix.
Meanwhile, Benchmark analyst Michael Ward lowered his price target for Ford stock to $23 from $25 but maintained a Buy rating. Ward increased his 2022 estimates to reflect the upbeat Q2 performance. However, the analyst lowered his 2023 estimates due to lower expected earnings from Ford Credit.
Overall, Ward expects Ford and the broader auto sector to outperform the global economy over the next 1 to 2 years based on a better cost position, competitive products, a strong balance sheet, and robust demand.
On TipRanks, the Street has a Hold consensus rating based on five Buys, 11 Holds, and one Sell. The average price target of $16.02 implies 4.43% upside potential from current levels.
ConclusionLike other automakers, Ford is exposed to near-term headwinds, including supply chain issues and macro challenges. Following the recent rally in Ford stock, several analysts see limited upside potential and prefer to remain on the sidelines. That said, Ford’s aggressive investments to ramp up its EV business are expected to drive its long-term growth.
As per TipRanks Smart Score System, Ford earns an eight out of 10, indicating the stock could outperform the broader market.
Shares of Tesla (TSLA) are starting to really heat up again, now up more than 20% over the past month. Fuelling the bounce was Tesla's impressive second-quarter beat and the relief rally experienced by the broader tech sector. Though the 57% earnings pop was impressive, the valuation remains incredibly stretched. Further, investors may underestimate the potential for a steep slide as the world economy tilts into a recession.
Not to take away from the incredible efforts of Elon Musk and company, but 12.1 times sales is just too high a price for an automaker that faces a wave of hungry rivals over the coming decade. For now, I remain bearish on Tesla stock with shares north of $800 per share.
Recent comments from the Federal Reserve following another 75 bps rate hike were soothing to investors owning high-multiple growth stocks. While the meeting could spark a relief rally in the most beaten-down names, Tesla's long-term roadmap could prove very bumpy.
Few firms, especially automakers, are immune from the effects of an economic contraction.
Tesla Stock Clocks in Another Impressive ResultTesla is making beating on earnings a habit. The latest beat was powered by higher average selling prices and strong vehicle deliveries. Demand for Tesla's hot line of EVs doesn't seem to signal that a recession is on the horizon. Whether Tesla's quarterly strength bodes well for the affluent consumer (who's less rattled by inflation) remains to be seen.
In any case, Tesla looks to have the momentum of a freight train as we head into a period of economic sluggishness. Whether Tesla's sales momentum can carry it through this recession is the million-dollar question.
Tesla remains the king of EVs, putting it on the right side of a powerful secular electrification trend that could span many years to come. After such quarterly strength, it certainly seems that secular tailwinds are stronger than economic headwinds.
A strong brand, an impressive lineup of vehicles, and top-of-the-line technologies have been differentiating factors that could act as some sort of moat around the firm's share of economic profits in the red-hot EV market.
Revenues and margins seem to be on the uptrend. As Tesla's Superchargers continue rolling out across the nation (and then the world), an increasing number of consumers will be willing to go electric with their next vehicle purchase.
Tesla Stock: Worth the Premium Price Tag?Despite the powerful secular trends, I do not view Tesla's moat as impenetrable. Tesla may be the EV leader today, but it's uncertain whether Elon Musk's empire can retain the throne 10 years from now. As traditional automakers go electric and become more tech-like, Tesla stock may face a considerable valuation multiple contraction.
Alternatively, the electrifying automakers — think Ford (F) — might be rewarded with a substantial multiple expansion. I'd argue that the former case is more probable. The argument for Tesla's premium multiple has been that the firm is a tech company that makes autos rather than an auto company with cool tech.
Sure, Tesla has intriguing technologies running behind the hood (forgive the pun), but are such features and functionality replicable by other automakers who are beckoning in top tech talent? Probably. The playing field is bound to even through the decade, and I'd argue that Tesla may not be able to widen the lead over its competitors.
Tech titan Apple (AAPL) has been rumored to be getting into the auto business for quite some time now. Currently, the rumor mill is pointing to an all-electric and autonomous vehicle that may launch in the latter part of this decade.
As one of the most innovative technology companies on the planet, a move into the auto industry could weigh heavily on Tesla's economic moat. Apple has the brand and tech to outdo almost any rival it chooses to fight over market share.
All it took was one simple change in its iOS operating system to wreak havoc on social media companies. Apple's ad business is relatively small today, but the move may lay the foundation for a bigger push in the future, perhaps once the metaverse goes mainstream.
Apple's entry into auto represents a top threat for Tesla, and I don't think the threat is factored in at current valuations. Sure, Apple's many years away from launching a car, but when it does, Tesla's best days may fall into the rear-view mirror (again, sorry for the pun).
Wall Street's Take on TeslaTurning to Wall Street, Tesla has a Moderate Buy consensus rating based on 18 Buys, six Holds, and seven Sells assigned in the past three months. The average Tesla price target of $872.28 implies 3.5% upside potential. Analyst price targets range from a low of $73.00 per share to a high of $1,580 per share.
Takeaway: The Valuation is Too High Relative to the RisksTesla is doing almost everything right these days. As we move into a recession, it may be tougher to continue blowing away the results. Further, competitive threats are poised to increase meaningfully over the next six years. Auto rivals and tech companies could find themselves breathing down Tesla's neck. That doesn't bode well for the rich multiple.