Breakingviews: Ford Stocks Staying Power Makes No Sense

Ford stock’s staying power makes no sense. The Motown carmaker run by Jim Hackett is valued by the market at some eight times forecast earnings for this year, a higher multiple than General Motors. Yet Ford has hit a series of potholes while its rival’s prospects soar. A profit warning from the “Blue Oval” on Tuesday ought to convince investors to cash in the difference.

Finance chief Bob Shanks told investors at a conference in Detroit that the company is likely to miss consensus estimates when it reports fourth-quarter earnings next week, largely because of shifting costs and currencies. There’s a good chance 2018 numbers disappoint, too. Cost cuts both planned and under way, he said, won’t have the biggest impact until “2020 and later.”

Earlier in the day GM gave a far more upbeat assessment of its prospects: flat earnings this year as it prepares to launch new high-margin pickup trucks that’ll add horsepower to 2019 results. Mary Barra’s outfit is also ahead of Ford and other peers on developing self-driving cars; she expects fleets of robo-taxis to hit some city streets next year. Ford said on Sunday that it’s more than doubling its electric-vehicle investments to $11 billion – adding to the sense that it’s stuck in a low gear.

Barra might hope investors will reward GM with a higher valuation than its current 7.4 times this year’s estimated earnings. But it’s hard to make a case that it should be valued more highly than German luxury carmakers BMW and Daimler, which each trade at more than eight times earnings. As for Ford, disappointing earnings, slow turnaround prospects and lagging plans for Autos 2.0 suggest Hackett’s contraption shouldn’t even be in the race.

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