Ford (F) shares are up 70% since Jim Farley became CEO, but he has work to do

DETROIT. As the new CEO of Ford Motor, Jim Farley promised Wall Street more transparency as well as a clear plan for the future.

At the time, Ford was considered an industry underdog when it came to all-electric and autonomous vehicles, communications, and software. His messages and plans were unclear to Wall Street, causing the stock to drop.

Two years later, the 60-year-old Farley has largely delivered on his promises thanks to Ford+’s current transformation plan, but there’s more to come.

He restructured operations and pretty much put Wall Street back in the automaker’s corner for the first time since Alan Mulally, who is credited with saving the automaker from bankruptcy in 2009, stepped down as CEO eight years ago. Ford shares are up about 70% since Farley took over, despite recent declines.

“It’s important for us and for the team to achieve strong business results,” Farley told CNBC in August 2020 when he was announced as the new CEO. “In terms of communicating with Wall Street…one of the most important commitments we make as a team is to have a clear and specific plan for the company and the transformation of the company.”

Both of Farley’s predecessors, Jim Hackett and Mark Fields, left the automaker due to low stock prices and failed to build confidence in the automaker on Wall Street. Under Hackett, the former CEO of furniture company Steelcase, Ford’s share price fell 40%.

But, as Farley usually says, the automaker remains at the start of its plan to transform Ford+ and move the industry to electric vehicles, which is likely indicative of an improvement in stocks under Farley, but also of their recent decline amid a larger market decline. Ford shares hit a decade-high price of over $25 a share earlier in the year, but it’s down about 56% from its January peak.

Doubts remain about the prospects for the automotive industry, as well as Ford’s ability to realize its plans. The company continued to struggle with vehicle launches, warranty costs, and supply chains, all of which Farley promised to fix when he became CEO.

“The key risks, in our view, are related to Ford’s ability to turn profitably into growth areas such as electric vehicles and self-driving cars, the automotive cycle, market share and margins (both pressure on margins during the downturn and increase in margins in the long term due to specific company initiatives). This was stated by Goldman Sachs analyst Mark Delaney in a note to investors last week.

Most recently, the company surprised Wall Street by pre-released part of its third-quarter earnings report, warning investors of a $1 billion supplier windfall. Since then, the company’s shares have fallen more than 23%, including the biggest daily drop in 11 years, the day after the announcement.

“I think the biggest thing he did was get the market to believe in Ford again. That belief may have been put on hold for now until they show they can deliver on the full 2022 outlook in light of the Q3 pre-announcement. Morningstar analyst David Whiston told CNBC, echoing other analysts.

Whiston describes Farley as a “straight communicator” who is “not afraid to take bold action”, such as internally splitting Ford’s conventional and electric vehicle business; increasing investment in electric vehicles to $50 billion by 2025; and reducing costs and headcount.

“He’s also a ‘car’, which I like because he has a passion for a product that helps get cars like the Mach-E as opposed to a crappy one (an economical electric car with a battery box) that no one wants.” Whiston said before adding that he would like to see fewer reviews and lower warranty costs. “But I think Ford is in good hands with Farley in the lead.”

Ford stock is priced overpriced with a target price of $16.12, about $4 more than its current price, according to FactSet’s average analyst estimates.

Here are the best and worst days for stocks during Farley’s tenure as CEO:

• January 4, 2022 +11.7%: Ford is announcing plans to nearly double the annual production capacity of its F-150 electric pickup truck to 150,000 vehicles a year at its Michigan plant.
• December 10, 2021, +9.6%: Farley told CNBC Investing Club along with Jim Cramer that the company closed bookings for its electric F-150 Lightning after it sold over 200,000 units.
• Oct 28, 2021 +8.7%: Ford nearly doubled Wall Street’s earnings expectations and slightly beat third-quarter earnings guidance, leading the automaker to raise its full-year guidance for the second time last year.
• September 20, 2022 -12.3%: Ford is pre-publishing part of its third-quarter earnings report and is warning investors of a $1 billion supplier windfall.
• February 4, 2022 -9.7%: Ford falls significantly short of Wall Street’s earnings expectations for the fourth quarter and slightly falls short of earnings.
• April 29, 2021 -9.4%: Ford impresses Wall Street with its first-quarter results, but the company’s weak full-year guidance surprises and even confuses investors and analysts.

– CNBC Michael Bloom contributed to this report.