Escalating car prices, alongside the upward price trend observed across various consumer goods, pose a challenge to the auto industry. Amidst such heightened macroeconomic uncertainties, I think it might be wise to wait for a better entry point in automaker Ford Motor Company (F).
J.D. Power's data analytics reveal that the average price for a new vehicle in the U.S. witnessed a 4.2% year-over-year increase in January 2023. This surge, coupled with the rising costs of gasoline and interest rates, has made car ownership increasingly burdensome, thereby impacting auto sales negatively.
Moreover, despite positive highlights in its Blue and Pro business segments, its Model e segment lags behind. In addition, F faces challenges such as plant slowdowns, rising material prices, and production interruptions for electric vehicles.
While the company is actively investing in capacity expansion for EVs and launching new models, the road ahead remains uncertain due to ongoing issues, including a battery problem with the F-150 Lightning pickup.
Shares of F have soared 39.4% over the past nine months and 36.1% year-to-date to close the last trading session at $15.07.
Here’s what could influence F’s performance in the upcoming months:
Recent Developments
On June 1, 2023, F and Uber Technologies Inc (UBER) partnered to introduce a new lease option, called Ford Drive, for rideshare drivers transitioning to electric vehicles (EVs).
The pilot program, currently available in San Diego, San Francisco, and Los Angeles, offers flexible leasing periods for Ford Mustang Mach-E models. Drivers can choose lease durations ranging from one to four months, with vehicle delivery within two weeks. The Ford Drive app enables drivers to manage payments and services.
Moreover, on May 25, 2023, F announced the signing of an agreement with Tesla, Inc. (TSLA), under which the company’s vehicle owners will be granted access to over 12,000 TSLA superchargers across the U.S. and Canada starting in early 2024.
Robust Financials
During the first quarter that ended March 31, 2023, F’s total revenues rose 20.3% year-over-year to $41.47 billion. Its adjusted EBIT increased 45.3% year-over-year to $3.38 billion. The company’s adjusted net income increased 61.4% over the prior-year quarter to $2.53 billion. Also, its EPS rose 65.8% year-over-year to $0.63.
Mixed Analyst Estimates
Analysts expect F’s revenue for the fiscal third quarter ending September 2023 to rise 9.2% year-over-year to $40.60 billion. The company’s EPS for the same quarter is expected to increase 30.7% year-over-year to $0.39.
Moreover, its revenue is expected to grow 8.4% year-over-year to $161.52 billion in the current fiscal year 2023. Its EPS estimate of $1.85 for the same year indicates a 1.5% decline compared to the previous year.
Mixed Valuation
In terms of forward non-GAAP P/E, F’s 8.33x is 44.6% lower than the 15.03x industry average. Its 0.37 forward P/S ratio is 56.7% lower than the 0.86 industry average. Its 1.31x forward Price/Book is 48.2% lower than the 2.53x industry average.
On the other hand, F’s 16.07x forward EV/EBIT is 17.6% higher than the 13.67x industry average.
Mixed Profitability
F’s trailing-12-month cash from operations of $10.74 billion is significantly higher than the industry average of $199.37 million.
On the other hand, the stock’s 10.70% trailing-12-month gross profit margin is 69.6% lower than the industry average of 35.24%. Its 1.75% trailing-12-month net income margin is 58.4% lower than the 4.20% industry average. Its 8.65% trailing-12-month EBITDA margin is 18.8% lower than the 10.65% industry average.
POWR Ratings Reflect Uncertainty
F has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. F has a C grade for Sentiment, justified by its mixed analyst estimates. It has a C grade for Quality, which is consistent with its mixed profitability.
F is ranked #26 out of 55 stocks in the Auto & Vehicle Manufacturers industry. Click here to access F’s Growth, Value, Momentum, and Stability ratings.
Bottom Line
At the end of the fiscal first quarter, F’s persistently strong balance sheet had nearly $29 billion in cash and more than $46 billion in liquidity. In addition, Ford recently completed the renewal of its more than $17 billion in sustainability-linked corporate credit facilities.
However, F currently faces numerous challenges, including plant slowdowns, increasing material prices, and potentially contentious labor negotiations.
So, I think it could be wise to wait for a better entry point in the stock.
How Does Ford Motor Company (F) Stack Up Against Its Peers?
Unfortunately, the odds of F outperforming in the weeks and months ahead are significantly compromised. However, many good stocks in the Auto & Vehicle Manufacturers industry have impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:
Bayerische Motoren Werke Aktiengesellschaft (BMWYY)
Subaru Corp. ADR (FUJHY)
Mercedes-Benz Group AG (MBGAF).
What To Do Next?
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F shares were trading at $15.08 per share on Tuesday morning, up $0.01 (+0.07%). Year-to-date, F has gained 39.56%, versus a 15.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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