Ford’s Stock: No Upside In Near Term?

by Trefis Team
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Despite a 50% rise since the March 23 lows of this year, at the current price near $6 per share we believe Ford’s stock (NYSE: F) has reached its near term potential. Ford’s stock has rallied from $4 to $6 off the recent bottom compared to the S&P which moved 39%. The primary reason for the high recovery was the Fed’s multi-billion dollar stimulus package announced on March 23rd which buoyed consumer sentiment.

Ford’s stock has partially reached the level it was at before the drop in February due to the coronavirus outbreak becoming a pandemic. This seems to make it fully valued, as in reality, demand and revenues will likely be much lower than last year. See Trefis estimate for Ford’s Valuation.

Overall the company’s stock price has fallen by 41% since the end of 2017. Some of the fall over the last 2 years was justified by the Net Profit which fell from $7.8 billion in 2017 to $47 million in 2019. Further, Ford’s revenues also fell by 1% from 2017 to 2019.

While the company has kept the revenue nearly flat over recent years, its P/S multiple has fallen significantly. A key factor behind the trend is the change in its net income margin figure from 5% to 0% over the last two years, with the figure likely to recover to less than 2% for the current year. We believe the stock is unlikely to see an upside after the recent rally and the potential weakness from a recession driven by the Covid outbreak. Our dash What Factors Drove -41% Change In Ford Motor Stock Between 2017 And Now? has the underlying numbers.

Ford’s P/S multiple changed from 0.27x in 2017 to 0.23x in 2019. While the company’s P/S is now 0.16x we think the multiple won’t see much change and is comparable to levels seen in 2018.

Effect of Coronavirus

The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. This is likely to adversely affect consumption and consumer spending. Due to the stay-at-home orders the consumer demand is fading. This is further helped by reduced discretionary spending and has resulted in a minimal demand for automobiles. In addition, there have likely been supply disruptions in China and elsewhere from the global Coronavirus crisis. We believe Ford’s Q2 results in July will confirm the hit to its revenue.

However, over the coming weeks, we expect continued improvement in demand and subdued growth in the number of new Covid-19 cases in the U.S. to buoy market expectations. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations vs historic valuations become important in finding value.

While Ford’s stock doesn’t have much near term upside, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.


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