How Do Europe Revenues Affect Ford’s Valuation?

by Trefis Team
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Ford Motor Co. (NYSE: F) reported its full year results for Fiscal Year 2018 in January. The company generated $160 billion in revenue and $0.92 in Non-GAAP EPS. Ford’s higher-than-expected earnings has boosted investor confidence. Based on Trefis analysis, we have a price estimate of $11 for the company. The company is taking important and decisive actions to resolve under-performance. Some of these, for example, they decided to phase out of sedans in the US market, restructuring in Europe, and plan to take China to a profitable growth.

Today we discuss How Important Is Europe For Ford? through our interactive dashboard. In addition, here is more Consumer Discretionary data.

Ford recently announced restructuring of its Europe business even after going through a strong product refresh in 2018. In the region the company plans to leverage their profitable light commercial van and pickup business while simultaneously reduce cost and improve capital efficiencies. The company recently announced that there will be a more targeted vehicle lineup in Europe which will help with the cost efficiencies. Further, the company recorded a 5th consecutive year of growth in share of light commercial vehicle business in Europe and is targeting the top position in 2019. All things considered, we believe that the company is finely poised in the region. So we created a scenario analysis to ascertain how much does the Europe business contribute to Ford’s valuation if the revenues from the region are 50% less and Nil so as to determine the importance of the segment to the share value of the company.

In case the company’s presence in the region is halved, and thus the revenue from the region is 50% of the current estimate, the price estimate falls down to $8, down by 28% from current Trefis Price. In the second case, if there is no presence of Ford in Europe, then the price estimate falls down to $5, down by 58% from current Trefis Price.

Note: We have assumed reduction in indirect expenses and other expenses in the scenarios, and we haven’t assumed any closure costs as here we are seeing the situation as “what would it be if the company had no presence,” and not “what would it be if the company shut down the existing operations.”


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