As one of the largest automobile manufacturers in the world, Ford Motor (F) generates well over $100 billion in annual revenues and sports a market cap of $96 billion. I am neutral on Ford stock.
Truly a global company, Ford generates about half of its revenues from international markets. Interestingly, the company sells very few cars anymore. Based on December 2021 sales, trucks represented 53% of sales results, SUVs were 44%, and cars were only about 3% of vehicle sales.
Despite selling four million vehicles annually at decent margins around the world, all investors seem to want to talk about is their electric vehicles. In December 2021, Ford sold 173,740 vehicles, of which only 7% were EVs.
The company claims they are now the second-largest EV automaker, after Tesla (TSLA). In a Bloomberg interview in December, the Ford CEO stated that the company hopes to be producing 600,000 EVs at an annual run-rate basis by 2024. F has also pledged that by 2030, 40% of vehicles sold will be electric.
Will Electric Vehicles Save Automakers?The car industry is a notoriously cyclical industry where during recessions, car sales precipitously decline and most automakers report substantial losses.
In the 2008 recession and market crash, the Big Three U.S. automakers asked for $50 billion to pay for health care expenses and avoid bankruptcy and further layoffs. This led to substantial loans by the U.S. government.
In December 2008, a bailout had been arranged totaling $17.4 billion to be distributed in January and February of 2009. In early 2009, the chances of bankruptcy by General Motors and Chrysler continued to look inevitable as new financial information about the scale of the 2008 losses came in.
Ford itself was not as damaged as much as the other automakers. However, it still suffered greatly as by the fourth quarter of 2008, it reported a loss of nearly $6 billion, and the annual total loss came to $14.6 billion.
That year, Ford's revenue declined almost 20%, and its cash reserves declined by $21 billion. The stock price retreated to around $2.00 per share.
In the Dot.com crash of 2000 and the subsequent recession in the following years, F stock declined approximately 80%.
When the next real recession hits (not a very brief COVID-19 recession), it won't make a difference if you're selling electric cars, internal combustion engine cars, or cars that run on bacon grease – people aren't going to buy autos. Every automaker will suffer as they have for 100 years when things get tough. Auto companies with particularly high price points (think Tesla) will suffer at disproportionally higher rates.
Balance Sheet and DividendAs of the third quarter of 2021, Ford had $46 billion in cash and over $144.5 billion in debt. The company's liquidity position is strong currently if you take Ford's financing arm, Ford Credit, out of the equation (Ford Credit makes up most of Ford's debt). If a recession hits in the near term, Ford itself should survive and maybe thrive, but the effect on its stock price is a different story altogether.
The current annual dividend is $0.40 which equates to a dividend yield of 1.65%. With analyst estimates approaching $2.00 for 2021 and 2022, the forward payout ratio remains low at 20%.
Wall Street's TakeTurning to Wall Street, F has a Moderate Buy consensus rating based on 11 Buys, five Holds, and three Sell ratings assigned in the past three months. At $21.28, the average Ford Motor price target implies 12.5% downside potential.
ConclusionI am neutral on F stock as I believe its recent successful financial accomplishments and record auto sales are admirable. Still, with the stock near all-time highs, future gains will be hard to come by, particularly when the next recession hits.
Ford is one of my favorite companies of all time with its quality products, rich history, and conservative approach to operations that is almost reminiscent of a family business.
However, this economic and market craziness won't last forever. For a company that has survived through the Great Depression and been through numerous economic recessions – it should know this already.
If Ford management is reading this, I implore them to raise equity capital at these crazy high prices and reduce all forms of debt, including at Ford Credit. When the next recession hits, it will be a doozy, and electric vehicles won't save the company.
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Disclosure: At the time of publication, Tom Kerr did not own shares of any stocks mentioned above.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >
Watch out Tesla (TSLA), because carmaker Ford (F) may be one of your biggest competitors in 2022. The company recently announced a set of changes around its Lightning F-150 electric truck that have potential buyers very excited. Ford's growing dominance in the electric vehicle market is deeply attractive. It's a great time to be bullish on Ford, thanks to this major potential new growth avenue.
Ford's year in share prices so far is basically three large plateaus. There was a jump in early January 2021 that took Ford from around $8 to nearly $11 per share. Ford then spent the rest of January into about mid-May around $11. That's when another jump kicked in that took Ford to around $16. However, Ford lost a bit of ground after that and started a slightly downward-sloped plateau to about $14 per share, where it remained until early October. Ford then caught a major upward movement, going from $14 to just over $20 in about two weeks. Subsequently, Ford's share price made a serious play for $22 before slipping back to around the $20 level, which is where we are today.
The latest news should make Ford even more attractive. Not only is Ford re-opening the purchase order market for its Lightning F-150 pickup, but it's also planning a huge new increase in production on that line. Previously, Ford shut down advance orders due to overwhelming demand. Now, Ford will make 150,000 Lightning F-150 models every year. This comes just a month after Ford's plan to triple production on its Mustang Mach-E electric car line.
Wall Street's TakeTurning to Wall Street, Ford has a Moderate Buy consensus rating. That's based on 10 Buys, 5 Holds, and 3 Sells assigned in the past three months. The average Ford price target of $20.59 implies 12.98% downside potential.
Analyst price targets range from a low of $12 per share to a high of $25 per share.
A Huge New Product Line Could Revitalize FordFord was never anyone's idea of a growth stock. A company that's been around for a century or so - anyone else remember the Model T? - has generally gone about as far as it can go. Ford is already bucking that trend, however, with its recent performance. Just look at Ford stock for the last five years. You can actually see the crater left by the pandemic. You can also see the nine months that Ford took to claw its way out of said crater to resume its plateau around the $9 mark, where it had been since at least 2017.
Then you can see the spike that kicked in back around September. That took Ford from “moderate gains” to “how did Ford double its share price in less than a year?”. It's tempting to say that all the gains are directly connected to Ford's explosive new lineup of electric cars. It's at least partially true, after all. Electric cars helped drive Ford's massive growth and made Ford the top growth stock in the auto industry for 2021. That includes Tesla. Ford managed to hit not only a five-year high, but also a 20-year high on December 10, after the announcement of tripled production on the Mustang Mach-E.
However, there's more than just electric car growth to account for here. Remember that October 2020 saw the departure of CEO Jim Hackett, who was replaced by Jim Farley, an auto industry veteran who promised more transparency for investors. Its massive production infrastructure, including its Michigan plants, will give Ford a further edge going forward.
It hasn't been all smiles, sunshine, and open roads for Ford, though; recent reports suggest that the new Bronco's soft top lets in quite a bit of snow during heavy snow conditions. The pictures that accompany said reports are a sight to see; of all the interior options Ford offers, “frosted” is not on the list. Nor should it be.
Also, there's the matter of Ford's dividend history. The dividend recently dropped from $0.15 to $0.10. Ford hasn't had a dividend that low since 2013. The company held to a $0.15 dividend for most quarters starting in 2015. However, in January 2020, the company halted dividend payments, likely due to the pandemic. The company restarted dividends back in November, which is likely a welcome sight for investors and should continue.
Concluding ViewsDespite a few minor hiccups, Ford is racing ahead. It was 2021's top growth stock in the auto industry, an amazing feat for a company that's been in business for over 100 years. Realizing further growth isn't that outlandish either. It's making a major new push in the electric market, and it still has plenty of life left in the internal combustion sector as well.
Looking for Ford to continue its growth isn't an outlandish proposition. It's already demonstrated its ability to produce cars that people want. With a major new market firing up in the electric vehicle sector and Ford already possessing the infrastructure to meet the demand, Ford could well beat Tesla at its own game. I look forward to seeing if it can, and I remain bullish on the chance that it will.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates. Read full disclaimer >