We're maintaining our 2 rating on Ford after its CFO shares near-term outlook

Published Wed, Jun 15 20224:04 PM EDTUpdated Wed, Jun 15 20224:35 PM EDT

Ford (F) said Wednesday that consumer demand for its new cars remains "very robust," while acknowledging that supply chain disruptions from China's lockdowns and higher commodity costs remain major challenges. The automaker has taken orders for more than 300,000 vehicles across its lineup, Ford CFO John Lawler told analysts at an auto industry conference hosted by Deutsche Bank. But the company has been unable to keep up with that strong demand because of the continued shortage in semiconductor chips. Lawler also explained that Ford has raised prices on most vehicles as much as it can for the near term to offset inflation. One area that may still have room to hike prices is on its electric vehicles, Lawler said, but added management would be very cautious and consider competitors' prices (the primary factor) and what the consumer can afford (the second most important factor). One other potential concern is Ford's credit business , which is beginning to see a rise in delinquencies. Lawler's view is that increase is more a reversion to the mean following a period of very low delinquencies coming out of 2021. Still, this is something we will need to monitor closely. It could very well be a leading indicator of the demand destruction the Federal Reserve has actively been attempting to cause in order to rein in inflation. There was no change to management's guidance and the company continues to target an 8% to 10% adjusted EBIT margin by 2026. On the possibility of a recession, Lawler stressed Ford is a different company today than in previous downturns. In the past, Ford would have a fully stocked inventory and need to offer high incentives to move those cars. The supply chain bottlenecks has forced Ford to stay very lean on inventory, and with that large number of orders it won't need to slash prices. The bottom line: Lawler's comments give us confidence that management is navigating the difficult environment and maintains our long-term conviction in the company. At 6.3 times fiscal year 2022 earnings and 5.7 times 2023 estimates, the risk of rising delinquencies and a recession are largely factored in. That's especially true given Ford's inventory position heading into a likely downturn; the stock also pays a 3.3% dividend yield. With all that mind, we are maintaining our 2 rating on Ford. A stock rated "2″ means we would wait for a pullback before buying it. We don't see any urgency to add to our position just yet given the current economic environment. (Jim Cramer's Charitable Trust is long F. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

Ford's Chief Financial Officer (CFO), John Lawler and Linda Zhang, Chief Engineer for the company's All Electric F-150 Lightning participate in the opening bell ceremony at the New York Stock Exchange (NYSE) in New York City, New York, U.S., April 28, 2022.

Brendan Mcdermid | Reuters