Has Ford’s Stock Peaked?

by Trefis Team
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[Updated 07/07/2020] Ford’s Stock Update

Ford’s stock (NYSE: F) has risen by 65% from $8.79 to $14.50 since the end of 2020. In comparison, the broader S&P500 rose by 16% in the same period. Compared to Trefis’ Ford’s Valuation of $13, at the current market price Ford’s stock is above its potential. Ford’s stock witnessed a surge in share price after Capital Markets Day where Ford outlined its Electrification revolution. The company will be accelerating its electrification investment to more than $30 billion by 2025 and expects 40% of Ford’s global vehicle volume to be electric by 2030. Last week the company announced more production cuts at eight factories in North America due to the ongoing global semiconductor shortage across the world which we expect will weigh on its market price in the near to medium term.

 

We expect Ford’s revenues to recover to $140.7 billion for 2021 after the heavy fall due to the Covid-19 pandemic in 2020. Further, its net income is likely to rise to $3.1 billion, increasing the EPS figure to $0.76, which coupled with the P/E multiple of 17.3x will lead to Ford’s valuation around $13, which is 7% lower than the current market price.

[Updated 12/18/2020] Ford’s Stock Has Recovered To Pre-Covid Levels, Will It Continue?

Having gained more than 123% since the March bottom, Ford’s stock (NYSE: F) has reached its near term potential. Our conclusion is based on a detailed comparison of Ford’s performance against the S&P 500 now as well as during the 2008 downturn in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Ford’s Stock Fare Compared With S&P 500?

Due to the Covid-19 crisis, Ford, one of the world’s largest automobile manufacturers, has seen its revenues fall by more than 21% for the first nine months of the year compared to the same period in the previous year. In Q3 2020, Ford reported an earnings beat with EPS of $0.60 and total revenues were also above consensus at $91 billion, up 1% y-o-y. Further, the company reported $19 billion in cash inflows from operating activities for the first nine months.

We expect Ford’s revenues to fall to $131 billion for 2020 due to the Covid-19 pandemic. Further, its net income is likely to rise to $2 billion, increasing the EPS figure to $0.50 for 2020. Thereafter, revenues are expected to touch $133 billion in 2021, mainly driven by recovery across segments after the pandemic subsides. Further, the EPS figure is likely to be around $0.47, which coupled with the P/E multiple of just below 19.4x will lead to Ford’s valuation around $9.

[Updated 08/07/2020] Ford’s Stock To Underwhelm After 67% Recovery

Ford’s stock (NYSE: F) has rallied 67% since late March (vs. about 46% for the S&P 500) to its current level of $7. This is after falling to a low of $4 in late March, as a rapid increase in the number of Covid-19 cases outside China spooked investors, and resulted in heightened fears of an imminent global economic downturn. The stock is currently about 12% below its February 2020 high of $8. Are the gains warranted or are investors getting ahead of themselves? We believe that the stock recovery is justified but the stock price doesn’t have much  more room to grow.

How Did Ford Fare During 2008 Downturn?

We see Ford’s stock declined from levels of around $5.50 in October 2007 (the pre-crisis peak) to roughly $1.50 in March 2009 (as the markets bottomed out) – implying that the stock lost as much as 75% of its value from its approximate pre-crisis peak. This marked a drop that was higher than the broader S&P, which fell by about 51%.

However, Ford’s stock recovered strongly post the 2008 crisis to about $7 in early 2010 – rising by about 400% between March 2009 and January 2010, as against the S&P which bounced back by about 48% over the same period.

In comparison, Ford’s stock lost 50% of its value between 19th February and 23rd March 2020, and has recovered 67% since then. The S&P in comparison fell by about 34% and rebounded by about 46%.

Is The Recovery Warranted & Can We Expect Further Gains?

The rally across industries over recent weeks can primarily be attributed to the Fed stimulus which largely quieted investor concerns about the near-term survival of companies. While Covid cases are still rising in many parts of the world, the planned opening in phases of U.S. and European cities is also giving investors some confidence that developed markets have put the worst of the pandemic behind them.

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, which would lead to lower demand for automobiles affecting Ford’s revenues. In the Q2 results the volume hit was confirmed as the company saw a decline of 53% in sales volume overall. Revenue fell by 54% to $16.6 billion for the quarter. Net Income improved to $1.1 billion as the company recognized a $3.5 billion gain on investment in Argo AI.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. With investors focusing their attention on 2021 results, the valuations become important in finding value.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market since 2016.

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