What's Behind Ford Stock's New Sell Rating?

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Ford Motor (F) stock is moving lower Monday after financial services firm Jefferies downgraded the automaker to Underperform (equivalent to a Sell) from Hold and lowered its price target to $9 from $12.

Ford stock has disappointed investors so far in 2024 with a decline of more than 16% for the year to date. And Jefferies analyst Philippe Houchois sees further downside from here, citing an inventory overhang, an upcoming decision on its European presence and concerns over high warranty costs.

De-stocking has become an issue for Ford, Houchois says. While "the drift in inventory in recent months could help achieve the guided $8 billion in free cash flow guidance," it "also creates an overhang into 2025," he adds.

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Regarding the company's "looming strategic decisions" on its European presence, Houchois questions Ford's ability to keep its operations going in the overseas market "given loss of scale in private vehicles," though exiting Europe "could hurt Pro's earnings."

Lastly, the analyst has "observed the gap between provisions made on repeated quality and warranty issues and the corresponding cash outflows" of approximately $8.5 billion since 2020, which equates to about $2 per share. Without a "dramatic improvement in quality," Houchois says these warranties will continue to be an overhang on Ford's net cash and balance sheet.

Ford stock is a Hold for most of Wall Street

The majority of Wall Street remains on the sidelines when it comes to the consumer discretionary stock. According to S&P Global Market Intelligence, the average analyst target price for F stock is $11.91, representing implied upside of about 19% to current levels. Meanwhile, the consensus recommendation is Hold.

Financial services firm Bernstein is one of those with a Market Perform rating (equivalent to a Hold) on the large-cap stock, along with an $11 price target.

"We like Ford's business for the high market share in U.S. trucks and improving battery electric vehicle (BEV) story," wrote Bernstein analyst Daniel Röska in a November 7 note. "But the upcoming quarters will likely see significant pricing headwinds in the U.S. market that neither Ford, nor its competitors will be able to escape."

Argus rates F a Buy

Not everyone is skeptical of Ford, though. Financial services firm Argus Research, for one, is bullish on the stock with a Buy rating and $13 price target.

"With the recently approved new labor agreement with the United Auto Workers in place and the restructured foreign operations now complete, (and showing a profit), we believe that the company's new heightened attention on reduction of costs, both structural and warranty, and its recently lowered capital expenditure program, will pave the way towards increased profitability in the next few years," said Argus Research analyst Bill Selesky in an October 29 note. "We believe that Ford shares offer value and remain attractively valued based on the company's global scale, brand reputation, and broad vehicle lineup, which continues to generate strong interest among consumers."

Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.