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Is Ford's Bargain Valuation Enough to Buy the Stock?
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U.S. legacy automaker Ford (F - Free Report) is trading quite cheap at the moment from a valuation standpoint. Its forward sales multiple of 0.26 is lower than its five-year average. The stock also looks attractively valued relative to its industry and closest peer, General Motors (GM - Free Report) . Ford has a Value Score of A.
Ford Shares Look Undervalued
Image Source: Zacks Investment Research
Ford’s cash flow is also attractive. Encouragingly, the auto giant raised its adjusted FCF projection for 2024 by $1 billion to a range of $7.5-$8.5 billion on the last earnings call. Going by F’s price-to-cash flow as well, the stock appears to have strong value right now.
Many professional investors favor the P/CF ratio because cash flow is harder to manipulate on the income statement, making it a reliable indicator of a company’s financial health. At 3.09, Ford’s P/CF is intriguingly below the industry’s 5-year average of 19.19.
Image Source: Zacks Investment Research
With the stock trading at a discount now, we delve into the company’s growth drivers and challenges to evaluate if investors should park their cash in Ford at this time.
Ford Pro Unit to Fuel Overall Results
The Ford Pro segment deals with commercial vehicles and services. The unit delivered strong second-quarter results, with EBIT rising 7% to $2.6 billion and a 15% margin. Segment revenues grew 9% to $17 billion, outpacing product shipment growth. High demand for Super Duty trucks and Transit vans led Ford to announce a third assembly plant in Ontario by 2026, adding capacity for 100,000 Super Duty units. Subscriptions to Ford Pro software increased 35% in the June quarter, while mobile repair orders fulfilled by its 2,000-vehicle service fleet more than doubled.
The combination of Ford Pro's strong order books, increasing demand signals and the successful launch of the all-new Super Duty sets the stage for a highly promising future for the Ford Pro segment. The company has raised the EBIT forecast of Ford-Pro unit from $8-$9 billion to $9-$10 billion amid continued strength across all three domains: vehicles, software and physical services. Ford’s increasing focus on software technology and services business will be a major driver.
Strong Liquidity & Generous Payout Boost Optimism
Ford ended second-quarter 2024 with around $27 billion in cash and more than $45 billion in liquidity. Ford’s superior liquidity profile provides a solid foundation for investment in Ford+ priorities. The company also remains on track to deliver $2 billion in material, manufacturing, and freight efficiencies over the full year. Ford has a high dividend yield of more than 5%, way better than the S&P 500’s yield of 1.23% on an average. The company targets distributions of 40-50% of FCF going forward, demonstrating its commitment to shareholder return.
Ford’s popular EV offerings like Mustang Mach-E, E-Transit vans and F-150 e-pickup will boost shipments. Ford brand EV sales soared 45% in the first nine months of 2024.With record EV sales, Ford claims it ranks just behind Tesla (TSLA - Free Report) in the U.S. market.
Ford’s electric F-150 Lightning sales more than doubled in the third quarter. Ford E-Transit, the best-selling electric van in the United States, recorded a 13% increase with 2,955 units sold.
The company plans to introduce a new commercial electric van in 2026 and two new pickup trucks in 2027. Additionally, it expects to start battery cell production at its Tennessee site in 2025, a critical step in securing the supply chain for its future EVs.
The company aims to boost the EV business's long-term prospects through scaling, leveraging digital capabilities for manufacturing efficiency and vertical integration by insourcing critical components. Having said that, the near-term prospects of Ford’s EV segment are not bright. After having incurred losses of $4.7 billion in its EV business, Ford anticipates loss to widen to $5-$5.5 billion this year, exacerbated by ongoing pricing pressure and increased investments in next-generation EVs.
Why F Stock is Not a Buy Despite Being on Sale
Apart from bleak near-term outlook for its EV business, Ford also trimmed 2024 EBIT forecast for its Blue unit (focusing on ICE and hybrid models) to $6-$6.5 billion (down from roughly $7.5 billion in 2023) amid high warranty costs. Ford incurred warranty and recall costs of $2.3 billion in the second quarter of 2024, up $800 million and $700 million on a sequential and yearly basis, respectively. The company has indicated that most warranty issues stem from older models and while it is improving the quality of its newer models, it may take 12 to 18 months before these efforts begin to reduce warranty costs. Unfortunately, this means that Ford could continue to face elevated warranty expenses for quite some time.
The Zacks Consensus Estimate for Ford’s 2024 EPS implies a year-over-year decline of 6.5%. The estimates for 2024 and 2025 EPS have moved south by 2 cents and 4 cents, respectively, over the past 60 days.
Ford is indeed attractively valued after declining 12% in the past six months (underperforming the broader market and General Motors). But, given the near-term concerns it is not a smart pick at the moment. Nonetheless, existing shareholders with a long-term investment horizon should hold onto the stock.
Image: Bigstock
Is Ford's Bargain Valuation Enough to Buy the Stock?
U.S. legacy automaker Ford (F - Free Report) is trading quite cheap at the moment from a valuation standpoint. Its forward sales multiple of 0.26 is lower than its five-year average. The stock also looks attractively valued relative to its industry and closest peer, General Motors (GM - Free Report) . Ford has a Value Score of A.
Ford Shares Look Undervalued
Ford’s cash flow is also attractive. Encouragingly, the auto giant raised its adjusted FCF projection for 2024 by $1 billion to a range of $7.5-$8.5 billion on the last earnings call. Going by F’s price-to-cash flow as well, the stock appears to have strong value right now.
Many professional investors favor the P/CF ratio because cash flow is harder to manipulate on the income statement, making it a reliable indicator of a company’s financial health. At 3.09, Ford’s P/CF is intriguingly below the industry’s 5-year average of 19.19.
Image Source: Zacks Investment Research
With the stock trading at a discount now, we delve into the company’s growth drivers and challenges to evaluate if investors should park their cash in Ford at this time.
Ford Pro Unit to Fuel Overall Results
The Ford Pro segment deals with commercial vehicles and services. The unit delivered strong second-quarter results, with EBIT rising 7% to $2.6 billion and a 15% margin. Segment revenues grew 9% to $17 billion, outpacing product shipment growth. High demand for Super Duty trucks and Transit vans led Ford to announce a third assembly plant in Ontario by 2026, adding capacity for 100,000 Super Duty units. Subscriptions to Ford Pro software increased 35% in the June quarter, while mobile repair orders fulfilled by its 2,000-vehicle service fleet more than doubled.
The combination of Ford Pro's strong order books, increasing demand signals and the successful launch of the all-new Super Duty sets the stage for a highly promising future for the Ford Pro segment. The company has raised the EBIT forecast of Ford-Pro unit from $8-$9 billion to $9-$10 billion amid continued strength across all three domains: vehicles, software and physical services. Ford’s increasing focus on software technology and services business will be a major driver.
Strong Liquidity & Generous Payout Boost Optimism
Ford ended second-quarter 2024 with around $27 billion in cash and more than $45 billion in liquidity. Ford’s superior liquidity profile provides a solid foundation for investment in Ford+ priorities. The company also remains on track to deliver $2 billion in material, manufacturing, and freight efficiencies over the full year. Ford has a high dividend yield of more than 5%, way better than the S&P 500’s yield of 1.23% on an average. The company targets distributions of 40-50% of FCF going forward, demonstrating its commitment to shareholder return.
Ford Dividend Yield (TTM)
Ford Motor Company dividend-yield-ttm | Ford Motor Company Quote
How is Ford’s EV Business Positioned?
Ford’s popular EV offerings like Mustang Mach-E, E-Transit vans and F-150 e-pickup will boost shipments. Ford brand EV sales soared 45% in the first nine months of 2024.With record EV sales, Ford claims it ranks just behind Tesla (TSLA - Free Report) in the U.S. market.
Ford’s electric F-150 Lightning sales more than doubled in the third quarter. Ford E-Transit, the best-selling electric van in the United States, recorded a 13% increase with 2,955 units sold.
The company plans to introduce a new commercial electric van in 2026 and two new pickup trucks in 2027. Additionally, it expects to start battery cell production at its Tennessee site in 2025, a critical step in securing the supply chain for its future EVs.
The company aims to boost the EV business's long-term prospects through scaling, leveraging digital capabilities for manufacturing efficiency and vertical integration by insourcing critical components. Having said that, the near-term prospects of Ford’s EV segment are not bright. After having incurred losses of $4.7 billion in its EV business, Ford anticipates loss to widen to $5-$5.5 billion this year, exacerbated by ongoing pricing pressure and increased investments in next-generation EVs.
Why F Stock is Not a Buy Despite Being on Sale
Apart from bleak near-term outlook for its EV business, Ford also trimmed 2024 EBIT forecast for its Blue unit (focusing on ICE and hybrid models) to $6-$6.5 billion (down from roughly $7.5 billion in 2023) amid high warranty costs. Ford incurred warranty and recall costs of $2.3 billion in the second quarter of 2024, up $800 million and $700 million on a sequential and yearly basis, respectively. The company has indicated that most warranty issues stem from older models and while it is improving the quality of its newer models, it may take 12 to 18 months before these efforts begin to reduce warranty costs. Unfortunately, this means that Ford could continue to face elevated warranty expenses for quite some time.
The Zacks Consensus Estimate for Ford’s 2024 EPS implies a year-over-year decline of 6.5%. The estimates for 2024 and 2025 EPS have moved south by 2 cents and 4 cents, respectively, over the past 60 days.
Ford is indeed attractively valued after declining 12% in the past six months (underperforming the broader market and General Motors). But, given the near-term concerns it is not a smart pick at the moment. Nonetheless, existing shareholders with a long-term investment horizon should hold onto the stock.
6-Month Price Performance
Image Source: Zacks Investment Research
Ford currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.