Adam Jonas: "We see Ford as an out-of-favor self-help story with room to surprise the market with cost-savings and profit repositioning potential."
DETROIT -- Shares of Ford Motor Co. jumped Wednesday morning after Morgan Stanley raised its valuation of the automaker for the first time in two years, a sign that Wall Street may finally be warming to restructuring efforts under CEO Jim Hackett.
Morgan Stanley upgraded Ford to "overweight" from "underweight" and increased its price target to $15 from $10. Ford shares jumped on the report, rising 2.2 percent to close at $11.02 during an otherwise down day on Wall Street.
"We see Ford as an out-of-favor self-help story with room to surprise the market with cost-savings and profit repositioning potential," Morgan Stanley analyst Adam Jonas, who has been largely critical of Ford, wrote in a research note.
Jonas said he was raising Ford's underlying earnings forecasts by the greatest amount in five years in part because of Hackett's efforts to slash costs and improve profitability.
Late in 2017, Hackett vowed to cut $14 billion in engineering expenses and shift $7 billion in product-development funding from cars to more profitable light trucks, among other changes. He has set a long-term goal of 8 percent profit margins.
Hackett and other Ford leaders plan to provide more details to the media Thursday on the company's product plans through 2020.
Thursday's presentation follows months of calls by Wall Street to be more transparent, including a memorable back-and-forth between Hackett and Jonas during Ford's fourth-quarter earnings call in January.
On Wednesday, Jonas said Ford's restructuring has the ability to reduce its costs by 20 to 40 percent and that there's still upside for its money-making F-150 pickup, which he estimates is by itself worth 35 percent more than the entire company.
"Our revised target gives Ford credit for adjusting its global portfolio to emphasize its strong position in US pickup trucks, where the company has outsized exposure," Jonas wrote.
He said many challenges remain, including the perception of an outdated product portfolio and apparent lack of cohesion around an "Auto 2.0" strategy.
Yet he argued that Ford has a "window of opportunity" if it takes a few concrete steps, including cutting small-margin sedans from its lineup, adding more SUVs, exiting underperforming markets such as Latin America and potentially spinning off the Smart Mobility subsidiary that Hackett led before replacing Mark Fields as CEO last May.
"Ford isn't out of the woods yet, but we think that the bar is pretty low here," Jonas said. "Decisive strategic actions and a cessation of negative revisions can improve investor confidence in management from a low level. Some of the restructuring actions we have anticipated may unsettle short-term investors. All else equal, we'd be buyers of weakness."