Will 2018 Be A Positive Year For Ford Motors?
Ford Motor Company’s (NYSE: F) December 2017 U.S. sales results were encouraging. While total sales grew around 1% compared to the same month in the previous year, SUV sales grew by 8%. For the year 2017, Ford’s F-series recorded a more than 9% increase in sales and for the 8th consecutive year the company was America’s best-selling vehicle brand. On the back of these strong sales, the company’s stock price has increased by nearly 30% in the last four months. This positive trend is likely to continue in 2018 as sales of trucks remain high this year.
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2018 – The Year Of The Truck? : With a 9.3% year on year increase in sales in 2017, Ford’s F-series has had its best performance since 2005. According to an analyst at Autotrader, 2018 is likely to be an “even bigger year for trucks” as automakers launch new models. Recently Ford announced that it would be launching a diesel engine version of its F-150 pick-up truck to build a competitive edge against other players. The diesel version will cost around $2,400-$4,000 higher compared to a gasoline truck and is likely to appeal to consumers looking for fuel economy. According to Autodata, pick-up trucks and SUVs accounted for 63% of U.S. sales in 2017, higher than the 59.5% number for 2016. Ford has benefited from this trend in 2017 and with the launch of better models in 2018 the company is likely to gain from this trend in 2018 as well. Further, with higher margins from SUVs and trucks, a product mix which is tilted towards these vehicles is likely to improve the company’s profitability.
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According to our estimates, Ford Motors generates its highest revenues from North America and we expect the company’s market share in the region to remain steady at around 13.75% over our forecast period. While the declining passenger car market in the region will adversely affect the company’s market share, growth in the pick-up trucks segment and the growing popularity of Ford’s F-series can impact the market share positively. A 100 basis points increase in market share in North America can lead to a nearly 15% increase in our price estimate for Ford.
Click here to analyze the impact of Ford’s market share in North America on the company’s valuation.
We estimate the average price of Ford vehicles in North America to increase gradually from around $31K to $33K over our forecast period. With a product mix shifting towards bigger vehicles, this price can increase at an accelerated pace over our forecast period, impacting the valuation of Ford Motors positively.
Click here to analyze the impact of Ford’s average price per vehicle in North America on the company’s valuation.
Ford Motors’ strategy to focus on F-series and introduce new models in this segment is likely to help the company in 2018. In the longer term its strategic focus on electric vehicles (with a strong go-to market strategy) and growth plan in China are likely to be the key growth drivers for the company.
Our price estimate for Ford Motors is $12.44 which is slightly lower than its current market price.
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