Should You Buy the Dip in Ford Motor?

Automobile manufacturer Ford Motor Company (F) in Dearborn, Mich., manufactures, markets and services trucks, cars, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles internationally. The company operates through Automotive; Mobility; and Ford Credit segments. Its better-than-expected operating results in its last reported quarter and the solid early demand for its full-sized electric pickup trucks ahead of their launch next year have helped the stock gain 91.1% in price over the past year and 44.8% year-to-date. While the company’s Lincoln brand plans to electrify its portfolio of vehicles by 2030, other global automakers are also racing to shift their traditional gasoline-powered cars to all-electric power.

However, because semiconductor chip shortage could worsen due to the resurgence of COVID-19 cases worldwide, the auto manufacturer’s production and sales growth could be hampered in the coming months.

In addition, the stock is trading 20.5% below its 52-week price high of $16.45, which it hit on June 4. Also, F is currently trading below its 50-day moving average of $14.14 but higher than its 200-day moving average of $11.97, which does not indicate a robust uptrend.

So here is what we think could influence F’s performance in the coming months:

Strategic Acquisition Bodes Well

In June, F announced the acquisition of California-based EV charging management and fleet monitoring software company, Electriphi, to integrate its capabilities with the Ford Pro services. The move will allow F to build an advanced charging and energy management system for its commercial customers and establish itself as a single-source solution for fleet-depot charging. In addition, as F prepares to launch all-electric versions of its F-150 pickup and the Transit van, Electriphi’s charging infrastructure platform should enable it to provide simplified fleet electrification and maintenance services to its customers.

Chip Shortage Could Slow Down Growth

As a fresh wave of COVID-19 hits Asian countries, several major centers for chip testing and packaging and chip operating plants have shut down temporarily, thereby aggravating the chip supply squeeze. According to an IHS Markit report, semiconductor shortages across the automotive sector are expected to extend into Q1 2022 and possibly into Q2. Last week, F announced that it would shut down its Kansas City assembly plant that is involved in the production of F-150 pickup trucks due to “a semiconductor-related part shortage as a result of the COVID-19  pandemic in Malaysia.” These supply constraints and production cuts could disrupt the automaker’s operations and negatively impact its sales.

Mixed Growth Story

F’s revenues and EBITDA have decreased at CAGRs of 4.9% and 10.7%, respectively, over the past three years. The company’s tangible book value declined at a 1.7% CAGR over this period. Furthermore,  its EPS decreased at a 20.8% annualized rate over the past three years.

Analysts expect F’s EPS to increase 292.7% year-over-year to $1.61 in the current year. However, its consensus EPS estimates indicate a 56.9% decrease in the current quarter and an 18.6% increase next year. In addition, F has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters.

The $130.36 billion consensus revenue estimate for its fiscal year 2021 represents  a 12.5% improvement year-over-year. Also, its revenue is estimated to increase 20.5% year-over-year to $157.05 billion in 2022.

Mixed Financials

During the second quarter, ended June 30, 2021, F’s Ford Credit revenue decreased 5% year-over-year to $2.6 billion, while its total revenue grew 38.1% from the prior-year quarter to $26.75 billion. The company’s non-GAAP adjusted EBIT came in at $1.08 billion, compared to a negative $1.95 billion adjusted EBIT in the prior-year period. But its net income was  $553 million for the quarter, representing a 50.5% decline year-over-year. And its  non-GAAP adjusted free cash flow totaled negative $5.1 billion. F reported a $2.77 billion net decrease in cash and cash equivalents  for the six months ended June 30, 2021.

Consensus Rating and Price Target Indicate Potential Downside

Of the 17 Wall Street analysts that rated the stock, five rated it Buy, and 11 rated it Hold. The $8.98 consensus price target indicates a 31.3% potential decline from yesterday’s $13.08 closing price. The price targets range from a low of $4.9 to a high of $12.

POWR Ratings Reflect Uncertainty

F has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. F has a C grade for Quality. The stock’s 0.5% asset turnover ratio, which is 49.6% lower than the 1.2% industry average, is in sync with this grade.

In terms of Stability grade, the company has a D. This justifies its relatively high beta of 1.14.

However, F has a B Sentiment grade, which is consistent with analysts’ expectation that its revenue and earnings will rise in the current year.

In addition to the grades we’ve highlighted, one can check out additional F ratings for Growth, Momentum, and Value here. The stock is ranked #29 of 62 stocks in the D-rated Auto & Vehicle Manufacturers industry.

Click here to check out our Automotive Industry Report for 2021

Bottom Line

F’s strategic acquisition of Electriphi to lead the EV revolution for commercial and retail customers and its accelerated pace of EV portfolio expansion could help the company keep pace with its rivals in the auto industry and benefit significantly. But as a global semiconductor shortage worsens because of the resurgence of COVID-19 cases, F’s manufacturing could suffer further. Given the uncertain growth outlook for the company, we think investors should wait for a more opportune time to invest in the stock.

Click here to checkout our Electric Vehicle Industry Report for 2021

How Does Ford (F) Stack Up Against its Peers?

While F has an overall C (Neutral) rating in our proprietary rating system, one might want to check out its industry peers with A (Strong Buy) ratings: Daimler AG (DDAIF) and Volkswagen AG (VWAGY).

F shares rose $0.07 (+0.54%) in premarket trading Wednesday. Year-to-date, F has gained 48.81%, versus a 20.60% rise in the benchmark S&P 500 index during the same period.

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.

More...