Over recent years, the automobile industry has captivated investor attention primarily due to the escalating adoption of electric vehicles (EVs). While the EV market has been largely dominated by Tesla (NASDAQ:TSLA), led by Elon Musk, and Chinese contenders like Nio (NYSE:NIO), Xpeng (NYSE:XPEV), and Li Auto (NASDAQ:LI), there’s another iconic automobile brand making significant strides in the EV realm. Even more enticing, its current valuations are appealing, and it boasts a history of consistently rewarding its shareholders with dividends. This spotlight is on none other than Ford Motor (NYSE:F).
In the swiftly evolving landscape of consumer auto preferences, how does Ford position itself to rival its electric counterparts?
Unveiling Ford’s Profile
Established in 1903 by the legendary Henry Ford, Ford Motor (NYSE:F) stands as a pioneering name in the global commercial automobile sector. Operating across more than 125 markets worldwide and headquartered in Detroit, Ford maintains a presence in key countries such as China, the U.K., and India. At present, the company boasts a market capitalization of $47.87 billion and offers a robust dividend yield of 5.05%. The performance of Ford shares in 2023 has been modest. Year-to-date, the stock has advanced by a mere 2.4%, contrasting with the gains witnessed by the S&P 500 Index ($INX) and the Nasdaq Composite ($NASX). However, indications are emerging that the decline in Ford’s value could be a strategic buying opportunity for investors seeking exposure to the EV sector.
Strong Q2 Results, Cautious EV Outlook
Ford reported robust figures for the second quarter, surpassing expectations in both revenue and earnings. Automotive revenues escalated by 11.8% compared to the previous year, reaching $42.3 billion—above the consensus estimate of $40.38 billion. While the EPS growth for the period was at a more measured 5.9%, amounting to $0.72, it still outperformed the projected $0.55 per share.
Impressively, over the past five quarters, the company has exceeded street expectations four times. Q2 also brought positive year-over-year growth in wholesale unit sales across all significant segments—Ford Blue (focused on internal combustion engine vehicles), Ford Pro (concentrating on commercial vehicles and services), and Ford Model E (targeting EV and related services). Nonetheless, the journey for EV growth has encountered challenges. Ford Model E’s Q2 revenues stood at $1.8 billion—a 38.5% increase from the previous year, yet representing only 4% of the total company revenues.
CEO Jim Farley signaled a more deliberate pace of EV adoption than initially anticipated, revealing a projected loss of about $4.5 billion in the EV sector for the year, wider than the previous year’s $3 billion loss. Ford’s goal of reaching an annual EV production rate of 600,000 units, initially expected this year, is now anticipated in 2024. Additional challenges include the recall of F-150 pickup trucks and concerns over the United Auto Workers (UAW) strike, both exerting industry-wide pressures. However, given the stock’s decline of over 14% since its late July earnings report, many of these concerns might already be factored into the current share price.
Assessing Valuation
Ford’s relative valuation position seems reasonable when contrasted with both traditional automaker General Motors (GM) and pure-play EV competitor Tesla. Across key metrics like forward price/earnings (F – 7.48 vs. GM – 4.75), price/sales (F – 0.28 vs. GM – 0.27), price/book (F – 1.09 vs. GM – 0.64), and price/cash flow (F – 3.70 vs. GM – 2.11), Ford’s valuations are slightly higher than GM’s. While the valuation gap between the two automakers is modest, General Motors maintains lower levels across these metrics. In comparison, Tesla currently trades at a forward P/E of 79.97, P/S of 7.84, P/B of 14.48, and P/CF of 52.87. Ford’s valuation appears notably more affordable than Tesla’s at present.
Expert Projections
Analysts hold a positive view of Ford’s earnings growth potential. The consensus points toward a 33.33% growth in earnings for the current quarter and a 12.23% growth for FY23. The collective analyst sentiment assigns a “Hold” rating to the stock. The average price target of $14.92 suggests a potential upside of approximately 26% from current levels. Out of the 14 analysts covering the stock, 4 rate it as a “Strong Buy,” 2 as a “Moderate Buy,” 5 as a “Hold,” and 3 as a “Strong Sell.”
Key Takeaway
Ford’s substantial cash reserves (approximately $26.4 billion at the close of Q2) and brand stature position it to strengthen its foothold in the rapidly evolving EV landscape. Coupled with its appealing valuations and solid dividend yield, Ford emerges as an intriguing choice for investors aiming to access the EV industry while favoring a stock that offers both a robust reputation and operational strength to complement its potential for future expansion.
Featured Image: Unsplash @ Kenny Eliason
Author Faith Yakubu