Detroit automaker Ford Motor Co. faces a critical juncture amidst sweeping changes in the global automotive landscape. Despite showing strength in certain areas, the company grapples with significant challenges in others. As Ford shifts its focus towards electrifying its vehicle lineup, its stock price has endured a 10% decline this year, leaving me with a cautiously neutral outlook on the shares.
Ford’s Resilience and Challenges
My reserved stance on Ford is validated by the company’s second-quarter financial report, revealing a blend of resilience and vulnerabilities. Ford recorded a revenue of $47.8 billion for the quarter, marking a 6% year-over-year increase driven by robust sales of gas-electric hybrids and commercial trucks. Notably, hybrid sales soared by 34%, signaling a healthy demand. On the flip side, Ford faced a 27% decline in its Q2 earnings to $2.8 billion due to escalating costs associated with warranty claims, materials, and manufacturing.
Ford’s Market Standing
Despite a mixed performance, Ford maintains a strong foothold in gas-electric hybrids and commercial vehicles, positioning itself as the top gas-powered and second electric vehicle manufacturer in the U.S. predicated on sales. The success of its hybrid range, particularly the F-150 hybrid pick-up truck, reflects ongoing sales prowess. Sales of hybrid pick-up trucks outpaced the overall hybrid market growth, providing Ford a strategic edge going forward.
Ford Pro, the commercial fleet entity, is anticipated to be a key growth driver in the forthcoming quarters by broadening its range of vehicles and services such as charging stations. With a substantial volume of paid software subscriptions and a burgeoning service-driven market, Ford is capitalizing on its fleet to cultivate novel, high-margin revenue streams.
Competition and Financial Strains
The formidable competition and burgeoning costs pose significant challenges for Ford, warranting my neutral stance on the stock. Ford’s foray into electric vehicles presents inherent risks, particularly evident in the unprofitability of its Model e division amid cutthroat rivalry from players like Tesla and other automakers. Ford’s CEO acknowledges the imperative to optimize production costs and avert launching electric vehicles at a loss.
Furthermore, Ford grapples with escalating costs across its entire operational spectrum, further denting its allure. Mounting warranty claims and inflationary pressures on materials erode the company’s margins, exacerbated by new technologies and the scale-up in electric vehicle production, creating a profitability hurdle amidst the evolving industry dynamics.
Ford’s Valuation
Reflecting market skepticism, Ford’s current valuation portrays uncertainties surrounding the company’s agility in navigating its challenges. With an anticipated earnings-per-share (EPS) of $1.90 for this year, Wall Street remains divided on Ford’s future performance. Notably, the stock trades at a forward price-to-earnings (P/E) ratio of 5.2, hovering close to a multi-year low and significantly lower than the average forward P/E ratio across S&P 500-listed stocks.
These depressed metrics reflect investor apprehensions about Ford’s competitive standing in the electric vehicle domain and its capacity to manage cost escalations. Nonetheless, these subdued valuations also harbor upside potential if Ford adeptly executes its strategic initiatives. Bolstering the profitability of its electric vehicle arm, leveraging the strength in hybrids and commercial vehicles, and prudent cost management could steer the stock towards an upswing in the forthcoming months.
Is Ford Stock a Buy or Sell?
Among 15 Wall Street analysts tracking Ford, a consensus Moderate Buy rating prevails, with a spectrum of five Buy, nine Hold, and one Sell recommendations issued in the recent quarter. The average price target for Ford stock of $13.67 underscores a potential upside of 24.39%.
If contemplating whom to follow regarding Ford stock, the most successful analyst over a one-year horizon is Michael Ward from Bank of America Securities, boasting an average return of 11.53% per rating and a commendable 43% success rate.
Read more analyst ratings on F stock
Conclusion:
Ford’s trajectory hinges on its adeptness in maneuvering through the swiftly evolving automotive sector. While the company’s dominance in hybrids and commercial vehicles lays a sturdy groundwork, challenges emanate from fierce rivals and escalating costs within its electric vehicle realm. Despite the caution warranted for investors, those embracing a risk appetite might discern Ford’s long-term potential as enticing.