There’s an auto maker strutting its stuff on Wall Street and it’s not who you think it is. Industry giant Ford (F) has been posting some unseemly year-to-date gains, with the shares skyrocketing 120% in 2021. In fact, such has been its renaissance, the stock currently nests at a peak last seen in 2011.
F stock’s latest upward movement followed a successful Q3 report in which earnings came in almost two times higher than the Street’s forecast. At the same time, Ford raised its full-year earnings guidance, and restored its dividend.
Jefferies’ Philippe Houchois has been impressed with the performance but that is not the only reason for his upbeat take.
“Presenting good numbers helped of course, but we found Ford management on the call more in control of operations and strategy than any time in the past 2 years despite industry uncertainty,” the 5-star analyst said. “Ford is early in an intense cycle of replacing and reviving key product franchise and playing to brand strengths with FordPro.”
What’s more, with supply challenges to the fore and keeping customers “frustrated,” an auto industry recovery should “logically” take place in 2022-23. And while higher prices and rising rates could affect affordability and pose a risk to demand along with “margin pressure from electrification,” Houchois believes these will be “offset” by Ford's product cycle.
The analyst counts “Industry leading product activity and structural cost reductions,” as factors which will help Ford deliver “better than industry earnings.” A much-repaired balance sheet “de-risks the funding of transformation,” as Ford pivots toward the new EV, AV and connectivity paradigm. The balance sheet should also get an additional boost from the probable IPOs of Argo AI and Rivian before the end of the year, companies the auto giant is heavily invested in; the latter, particularly, could be worth more than $5 billion to Ford.
To this end, Houchois rates Ford share a Buy alongside a $20 price target. This figure implies a modest upside of 3%. (To watch Houchois’ track record, click here)
Overall, most analysts feel the shares have soared high enough for now; the $17.53 average target suggests the stock will stay rangebound for the foreseeable future. (See Ford stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
Ford (F) is an American multinational automotive manufacturer. I'm neutral on the stock. (See Analysts’ Top Stocks on TipRanks)
Sales UpdateFord's October sales report came in strong, with total sales growing by 12.3% month-over-month. SUVs led the charge with 12.3%, and EV sales also appreciated by an astronomical 195%.
The strong October report arrived shortly after the company released its third-quarter financial results, where it beat revenue estimates by $410 million and earnings per share estimates by $0.24.
Concerns Moving ForwardAlthough Ford's total vehicle sales have performed well, it has experienced a decline in U.S. sales of 4%. This comes with a decrease in total U.S. auto sales of 49% since April.
The U.S. has been plagued by high inflation as disposable income and supply-chain bottlenecks increase. Supply-chain hiccups persist, but disposable income has decreased by 21.34% since March, and these two data points combined could cause a further slowdown in U.S. sales.
Furthermore, Ford sells nearly a quarter of its vehicles in China, where there are concerns regarding GDP growth due to hard-line economic policies drawn by the Chinese government.
Other regions around the globe, such as the EMEA, are also facing certain systemic challenges due to the pandemic. Thus, I believe there's no way that vehicle sales growth in a post-stimulus world will persist.
Overvalued and OverboughtMetrics for Ford stock are in the red zone. The stock's trading above its 5-year average price-to-earnings and price-to-sales ratios by 46.9% and 99.3%, respectively. Automotive sales are cyclical, and these elevated numbers suggest we're at or near the top of an expansionary cycle.
There are many who claim that the robust EV sales growth and its investment in it will send Ford into a new dimension. However, CapEx has declined by 7.69% year-over-year, indicating that a lesser proportion of the company's earnings is getting invested across product segments.
Ford stock is overbought. Many investors have gotten caught up in current sales numbers and the EV hype. As a result, the stock's RSI (Relative Strength Index) has risen above 70, which is considered as the overbought threshold.
Wall Street's TakeTurning to Wall Street, Ford has a Moderate Buy consensus rating, based on eight Buys, three Holds, and two Sells assigned in the past three months. The average Ford price target of $17.54 implies 8.6% downside potential.
The latest consensus has been somewhat divided, with Jeffries upgrading the stock to a buy with a price target of $20, and Nomura downgrading the stock to a sell with a $13 price target.
Concluding ThoughtsAlthough Ford has done amazingly well year-to-date from a business and stock perspective, there are telling signs that the momentum is slowing.
I believe investors have gotten caught up in the now instead of looking at what's ahead in Q4 and 2022. I'm not yet bearish on the stock, but I'm definitely no longer bullish.
Disclosure: At the time of publication, Steve Gray Booyens 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, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
The push for electric vehicles (EVs), fueled by government incentives and shifting customer preferences towards environment-friendly vehicles, has resulted in even traditional fossil-fuel powered automakers going electric in a big way.
This transition got a further boost earlier this year, when U.S. President Joe Biden signed an executive order that intends to make 50% of all new vehicles sold in the United States electric by 2030.
Let us compare two automobile companies that are going electric in a big way, General Motors and Ford Motor Co., and see how Wall Street analysts feel about these stocks using the TipRanks stock comparison tool.
General Motors (GM)General Motors’ Q3 earnings were plagued by semiconductor shortages as revenue plunged 24.5% year-over-year to $26.78 billion, compared to the year-ago period, but surpassed Street estimates of $26.51 billion.
Adjusted earnings came in at $1.52 per share, down 46.3% year-over-year, but much better than analyst estimates of $0.96 per share.
These hiccups aside, GM continues to push through the scaling up of its EV production, as well as growth in its core automotive business and connected services.
GM stated in its Q3 letter to shareholders, “By the end of the decade, we envision that connected vehicles and other new businesses will drive more than $80 billion in new, incremental revenue. At the same time, revenue from EVs is expected to grow from about $10 billion in 2023 to $90 billion.”
In fact, by 2025 GM has projected that its assembly capacity for EVs in North America will reach 20%, going up to 50% by 2030. What’s more, using these assets for EV production could result in GM avoiding capex of “about $1 billion to $1.5 billion per assembly plant, and save months or even years compared to developing an all-new site.” (See Analysts’ Top Stocks on TipRanks)
Wedbush analyst Daniel Ives believes that this “will result in a metamorphosis of its valuation in the eyes of the Street.”
The analyst brushed aside the chip constraint issues as “near term” and reiterated his bullish stance with a Buy rating and a price target of $85 (52.9% upside) on the stock, following the Q3 results.
The company continues to expect to battle on many fronts in Q4, including volatility in the supply chain and higher commodities and logistics costs. As a result, GM now expects adjusted diluted earnings to come in between $5.70 to $6.70 per share, “driven by a revised full-year effective tax rate due to favorable tax determinations and a mix of global earnings.”
However, GM continues to be focused on its long-term goals, including doubling of its annual revenues by 2030 and “expanding our EBIT-adjusted margins to 12 to 14 percent.”
The company plans to achieve this by adding two more EV battery plants in the United States in 2022 and 2023, with a combined capacity of 70 Gigawatt hours (Gwh). GM elaborated more on this in its letter to shareholders, saying, “We will have four U.S. battery cell plants by mid-decade, which will double our overall capacity and scale EV production faster. In addition, we plan to build EV motors and our first dedicated EV truck facility here in the U.S.”
Analyst Ives considers this “transition period as noisy but see the forest through the trees on an EV transformation and re-rating for shares on the other side of this green tidal wave journey by Barra & Co. over the next 18 to 24 months.”
Wall Street analysts echo Ives’ view and are bullish, with a consensus Strong Buy rating on GM, based on 14 Buys and 1 Hold. The average General Motors price target of $73.20 implies 31.7% upside potential to current levels.
Ford Motor Co. (F)Investors seem to be cheering Ford’s Q3 results, as the stock has soared 16.1% in the past five days. In Q3, while the company’s revenues declined 5% year-over-year to $35.7 billion, they exceeded analysts’ expectations of $33.11 billion. Adjusted diluted earnings came in at $0.51 per share, a year-over-year decline of 14 cents per share, but remained higher than the Street’s estimate of $0.27.
Ford is expected to release its sales figures in the United States for the month of October today.
The company plans to lead the United States’ push for EVs and announced in September this year that, along with SK Innovation, it plans to invest $11.4 billion to build the EV manufacturing campus, which will include twin battery plants. They will also manufacture the new generation F-Series trucks, and advanced lithium-ion batteries.
At the same time, Ford is investing $1 billion to go electric at its center in Cologne, Germany by 2023.
Jeffries analyst Philippe Houchois was not only buoyed by the Q3 results, but found the company’s management “more in control of operations and strategy than any time in the past 2 years despite industry uncertainty.”
As a result, the analyst reiterated a Buy rating and raised the price target from $17 to $20 (11.1% upside) on the stock.
Considering the strength in the company’s business, Ford raised its FY21 adjusted EBIT guidance and now expects it to range between $10.5 billion and $11.5 billion. (See Top Smart Score stocks on TipRanks)
John Lawler, Ford’s CFO, commented that while the company continues to expect to adjust to the changing dynamics between chip constraints, vehicle volumes and pricing next year, “what’s certain is that we’re going to keep investing smartly and heavily in Ford+… We believe the long-term value creation from these investments will be substantial.”
The company’s emphasis on long-term investments is indicated by the fact that between 2020 and 2025, Ford expects capex to range from $40 billion to $45 billion at a run rate of around $7 billion each year.
Elaborating further, Lawler explained that Ford expects to invest more than $30 billion in Battery Electric Vehicles (BEVs), out of which 50% investment will be capital expenditure.
The company also announced its plans to restart a “regular quarterly dividend of $0.10 per share in the fourth quarter of 2021.” Lawler added that the dividend reflected its “confidence in the improving run rate of the business.”
Analyst Houchois seemed to echo this view and said that while the automobile industry will continue to battle cost inflation while seeing improvement in volumes, he sees the company “delivering better than industry earnings while bsheet [balance sheet] repair has derisked the funding of transformation.”
Wall Street analysts, however, are cautiously optimistic and the consensus is that Ford is a Moderate Buy, based on 8 Buys, 3 Holds, and 2 Sells. The average Ford Motor price target of $17.54 implies 2.6% downside potential to current levels.
Bottom LineWhile analysts are bullish about GM, they are cautiously optimistic about Ford. It remains to be seen who will race ahead in this EV race. However, based on the upside potential over the next 12 months, GM seems to be a better Buy.
Disclosure: At the time of publication, Shrilekha Pethe 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, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.