Is Ford Motor Company (NYSE:F) On The Right Track?

- October 18, 2017

Ford Motor Company (NYSE:F) is currently not in the top ten global EV sellers and the Ford Focus electric was ranked only 19th in the U.S. for September sales. Clearly Ford has plenty of catching up to do in this area. Ford’s new CEO Jim Hacket (previously head of the futuristic Ford Smart Mobility) has recently announced a large cost cutting exercise of 14b , so as to focus on trucks, SUVs and electric vehicles.

In 2015 Ford said it wanted 40% of all its cars to be electric powered by 2020. That is up from the existing 13%. The company plans to start in Europe in 2020 with a “cross-over” style vehicle with a battery range of 300 miles. Ford has said they plan to spend plan $4.5B to electrify 13 new vehicles by 2020.

 

Source

 

About Ford Motor Company (NYSE:F)

Ford Motor Company (NYSE:F) engages in the manufacture, distribution, and sale of automobiles.
It operates through the following segments: Automotive, Financial Services, Ford Smart Mobility, and Central Treasury Operations. The company was founded by Henry Ford on June 16, 1903 and is headquartered in Dearborn, Detroit, Michigan, USA.

As we can see by the chart below Ford’s main US car market revolves around truck sales representing 47% of all sales in September, up 19.9% and doing well. Ford fleet sales are also a very important area for them, which are also doing well lately. With Hurricane Harvey and Irma damaging an estimated 2.5M cars in Texas and Florida alone, car and light truck sales should see an increase.

Ford’s US sales breakup – September 2017

Source

2016 Revenue Breakup

We can see below Ford earns 93% of their revenue from their automotive division, and 7% from their financial services division. Also of note is that 62% of revenue comes from the USA.

Source: SaxoTrader

Ford (NYSE:F) ranks near the middle of the leading global automakers based on revenue in 2016. This can indicate Ford has room to improve if they can increase their market share. Ford’s new direction under CEO Jim Hackett is two fold; a 14 Billion.  cost cutting plan and re-allocating 7 Billion of funds from cars to more profitable sport utility vehicles and trucks.

We can see from the graph below that Ford’s net income has recently turned slightly higher in the past few quarters of 2017.

Source: HadePlatform.com

Financials and Valuation

Ford has a market cap of US $48 Billlion and an enterprise value of US $37B. 

2017 PE is 7.17, and 2018 PE is 7.89. Net profit margins for 2017 are forecast to be 4.74% and 4.4% in 2018. Company has no debt. Dividend yield is 5.84%. Analyst consensus estimates are for a target price of $11.86, with a hold rating.

Ford trades at a significantly discounted PE ratio to peers, ~30% reduced valuation (2017 PE) than its peers.

Competition and Risks

The car industry has fierce competition which tends to put pressure on net profit margins, with Ford’s margins currently quite low at 4.74%. Electric vehicles pose a threat to all conventional car manufacturers. To combat this Ford’s new CEO Jim Hackett plans to divert resources from cars to trucks and electric. Dependence on the US market , and in particular the small truck (pick-up) market, and to lesser degree fleet sales.

Conclusion

Ford Motor Company (NYSE:F) is mostly a play on the US small trucks (pickups) market as well as US fleet sales and some retails sales especially in SUVs. Given the US economy is doing well then Ford should continue to perform well in this area.

Competition is always a major threat in the car industry, and with electric vehicles it is an increasing threat to Ford, who has been late to develop their EV platforms. To combat this Ford has recently had a change of CEO, and is moving quickly to catch up having announced a plan to spend US $4.5b to electrify.

Under new CEO Jim Hackett Ford will focus to cut costs and divert expenditure to trucks, SUVs and electric vehicles. Additionally Ford is planning to accelerate the introduction of connected and smart vehicles. It expects all cars in the US to be built with connectivity by 2019. Time will tell if this new direction will pay off; however I agree it is the right direction for Ford.

Valuation is very cheap when compared to some of their global peers, which is a major plus for Ford. This can also be explained due to the threat of Tesla (TSLA) and other EV makers to disrupt the industry, and Ford’s lagging position in this area.

I rate the stock a turnaround play and a buy, and would look to accumulate now and as their new strategy starts to show results.

 

 

 

 

 

 

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