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Bull Of The Day: Ford Motor (F)

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Performance

Ford (F - Free Report) has come a long way since the American auto-industry almost failed in March of 2009. They have achieved steadily increasing revenues growing on an annual average of 3.6% since 2009. In Q1 this growth was illustrated yet again beating their estimated EPS by almost 70% representing growth Y/Y, which analysts were not expecting. Yearly EPS estimates just went from negative for 2019 and 2020 to positive as analysts recognize operational excellence in America’s oldest automotive company.

In their most recent quarter, Ford grew both its SUV and truck businesses, increasing sales by 5 and 4.1% Y/Y respectively. These two segments are the bread and butter of Ford, making up over 80% of the vehicles sold. Ford's smaller cars underperformed the rest of the portfolio losing 23% Y/Y. The F-Series truck remains Ford's highest performing vehicle and continues to gain market share with the closest competitor delivering 95K fewer trucks this quarter, expanding this margin by 16K trucks from Q1 last year. With oil prices down over 15% from their high in Q4, consumers are feeling more confident about buying larger vehicles. Ford struggled internationally losing market share in every market outside the US and an overall negative EBIT. Luckily 70% of their revenue and over 100% of EBIT comes from North America where they were actually able to gain market share and improve margins.

Future of Ford

Ford is always looking forward as a firm and has a large research and innovation center in Silicon Valley with over 160 top researchers, engineers, and scientists. They are making the connection between automotive and computer technology a priority. Electric and autonomous cars will be the future of the automotive industry and Ford is dedicated to being a front runner in this race. They plan on having a fully autonomous car available to the public by 2021. Ford says it will launch 40 electric cars by 2022 for global consumers.

Ford has been reducing the number of vehicle platforms they use in order to achieve larger economies to scale. They currently have 9 car platforms one-third of what they had in 2007 and are going to reduce this to 5 moving forward. This will cut manufacturing costs as well as make it easier for Ford to pivot to consumer needs and get vehicles to market faster.

Financial Advantage

Currently, F is trading at a discount for all major valuation metrics. Ford is valued at 8.44x forward P/E compared to the broader auto industry trading on average at 10.18x. They are trading at less than half of the industries average P/S and P/B. Ford is rewarding investors with a 5.74% dividend yield far above the 3% industry average.

Conclusion

Ford is trading at $10.30, still 22% off of its high last year and is likely to bust through last year’s high if these favorable economic conditions continue. One concern with any automotive company is that they are incredibly cyclical and are directly correlated with consumer discretionary spending. If the economy turns south, people will not be buying as many cars and this will have a materially negative effect on Ford’s profits. Looking just at analysts’ outlook for F I am very optimistic about its future, especially with the discount it is currently trading at and the 5.74% dividend to curb investors’ concerns. F - Zacks Rank #1 (Strong Buy).

Ford Motor Company Price, Consensus and EPS Surprise

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