Auto sales took a hit last year due to high inflation, interest rate hikes, and supply chain disruptions. However, this year has begun on a much better note, with easing inflation and supply chain constraints leading to robust car sales.
Improving supply and pent-up demand led to auto sales rising 16.8% from April through June to around 4.1 million units. According to Wards Intelligence, U.S. new vehicle sales in June were 1.37 million units.
Passing through this industry backdrop, Ford Motor Company’s (F) second-quarter revenue is expected to rise 9% year-over-year. But analysts expect the company’s EPS to decline 21.1%. The company is scheduled to report its second-quarter results tomorrow.
In this piece, I have discussed several reasons why it could be wise to buy the stock despite the expected decline in earnings.
F was America’s best-selling brand in the second quarter, with sales rising 11.2% year-over-year to 511,538 vehicles. The company’s truck sales climbed 26.2% year-over-year to 295,602 units due to improved inventory and the new Super Duty. F has outsold General Motors Company (GM) trucks and vans by approximately 61,000 units. Its truck sales have risen 23.1% year-to-date to 549,625 units.
F’s vice president of sales distribution, and trucks, Andrew Frick, said, “Ford achieved both best-selling brand and truck for six consecutive months this year on the strength of FSeries, vans, our new Escape, and F-150 Lightning. Our EV sales continue to grow. Improved Mustang Mach-E inventory flow began to hit at the end of Q2 following the retooling of our plant earlier this year, which helped Mustang Mach-E sales climb 110 percent in June.”
The company is investing C$1.8 billion in its Oakville Assembly Complex to transform it into a high-volume hub of electric-vehicle manufacturing in Canada. The investment is part of F’s plan to scale the production of electric vehicles.
On June 12, 2023, the company announced the opening of the Cologne Electric Vehicle Center, a hi-tech production facility in Germany that will build its new generation of electric vehicles for Europe. The new EV center will have an annual production capacity of 250,000 EVs. The new center will help support F’s global plans to reach two million EVs annually by the end of 2026.
On May 25, 2023, F announced the signing of an agreement with Tesla, Inc. (TSLA), under which the company’s vehicle owners will be granted access to over 12,000 TSLA superchargers across the U.S. and Canada starting in early 2024. Also, F’s next-generation EVs will include TSLA’s charging plug, helping Ford vehicle owners charge at Tesla superchargers without an adapter.
For fiscal 2023, F forecasts adjusted EBIT of between $9 billion and $11 billion and adjusted free cash flow of $6 billion. The company’s EBIT for Ford Blue is expected to come in at $7 billion.
The stock has gained 15.4% in price over the past three months and 22.7% year-to-date to close the last trading session at $13.58.
Here’s what could influence F’s performance in the upcoming months:
Robust Financials
F’s total revenues for the first quarter ended March 31, 2023, rose 20.3% year-over-year to $41.47 billion. Its adjusted EBIT increased 45.3% year-over-year to $3.38 billion. The company’s adjusted net income increased 61.4% over the prior-year quarter to $2.53 billion. Its EPS came in at $0.63, representing an increase of 65.8% year-over-year.
Mixed Analyst Estimates
Analysts expect F’s EPS for fiscal 2023 to increase 0.4% year-over-year to $1.89. Its EPS for fiscal 2024 is expected to decline 3.8% year-over-year to $1.82. Its fiscal 2023 and 2024 revenue is expected to increase 8.5% and 2.7% year-over-year to $161.65 billion and $166.02 billion.
Mixed Valuation
In terms of forward non-GAAP P/E, F’s 7.19x is 53.1% lower than the 15.35x industry average. Its 0.34x forward Price/Sales is 62.8% lower than the 0.90x industry average. Likewise, its 1.18x forward Price/Book is 55.6% lower than the 2.66x industry average.
On the other hand, in terms of forward EV/EBITDA, F’s 10.34x is 5.4% higher than the 9.82x industry average. Likewise, its 15.23x forward EV/EBIT is 7.2% higher than the 14.21x industry average.
Mixed Profitability
F’s 1.75% trailing-12-month net income margin is 58.2% lower than the 4.19% industry average. Likewise, its 8.65% trailing-12-month EBITDA margin is 20.7% lower than the 10.90% industry average. Furthermore, the stock’s 10.70% trailing-12-month gross profit margin is 69.7% lower than the industry average of 35.25%.
On the other hand, the stock’s 4.41% trailing-12-month Capex/Sales is 36% higher than the industry average of 3.24%.
Solid Historical Growth
F’s EBIT grew at a CAGR of 209.6% over the past three years. Its EBITDA grew at a CAGR of 17.7% over the past three years. In addition, its revenue grew at a CAGR of 3.3% in the same time frame.
POWR Ratings Show Promise
F has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. F has an A grade for Growth, in sync with its solid historical growth.
F is ranked #23 out of 55 stocks in the Auto & Vehicle Manufacturers industry. Click here to access F’s Value, Momentum, Stability, Sentiment, and Quality ratings.
Bottom Line
F witnessed strong vehicle sales growth across its portfolio during the second quarter. Its second-quarter earnings are expected to decline year-over-year. Moreover, the company expects to lose $3 billion this year on EV sales.
However, F is making rapid inroads toward a fully-electrified future with its new launches, strategic agreements, and investments. It aims to produce 2 million EVs annually by the end of 2026. Given its robust financials and solid historical growth, it could be wise to buy the stock now.
How Does Ford Motor Company (F) Stack Up Against Its Peers?
F has an overall POWR Rating of B, which equates to a Buy rating. Check out these other stocks within the Auto & Vehicle Manufacturers stocks with an A (Strong Buy) or B (Buy) rating, such as Bayerische Motoren Werke Aktiengesellschaft (BMWYY), REV Group, Inc. (REVG), and Nissan Motor Co., Ltd. (NSANY).
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
F shares rose $0.01 (+0.07%) in premarket trading Wednesday. Year-to-date, F has gained 27.23%, versus a 19.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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