Ford 'must execute significant structural change'

  • Moody’s downgraded Ford‘s bonds to one level above junk status this week – a move that has even the automaker’s biggest fans worried.
  • Adam Jonas of Morgan Stanley writes that there’s still room for Ford to execute on it’s plan – if only he knew what that plan was.
  • Follow Ford’s stock price in real-time here.

Ford got slapped with a downgrade from the debt-rating agency Moody’s on Wednesday – and its most bullish Wall Street analyst isn’t happy about the implications.

Writing to clients Friday, Morgan Stanley said the new negative outlook which accompanies the downgrade to Baa3 from Baa2 – one notch above a junk rating – means “there is still enough time to execute,” but comes with a glaring warning: “we just wish we knew the plan.”

The Moody’s downgrade on Wednesday came during a bull market, Morgan Stanley points out. In handing down its verdict, Moody’s writes the change “reflects the erosion in the company’s global business position and the challenges it will face implementing its Fitness Redesign program.”

Most notably, companies that are hit with ratings downgrades will face more expensive debt raises going forward. The bank points out that Ford’s debt is already more expensive than its crosstown competitor General Motors. It’s also “another sign that the company must execute significant structural change,” analyst Adam Jonas writes.

“We estimate that Ford’s $US11bn restructuring may be designed to shrink the revenue footprint by 20% to 30%, targeting roughly 25k in headcount reductions,” he continued. Jonas has a $US15 price target for Ford shares – the highest on Wall Street, according to a Bloomberg poll.

Still, he remains bullish despite the downgrade.

“We believe ratings agency action is an important catalyst to further focus investor and management attention on both the risks and the opportunities inherent in the Ford story,” Jonas writes.

“While this has added to the risk of owning the stock, we believe it has also been somewhat discounted in the share price and does not change our view that the company can benefit from a change in strategy.”

Ford shares are down 25% this year.

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