Ford Motor Company

Ford Details

Ford Motor Company (NYSE: F) is a global automobile company engaged in designing, manufacturing, marketing, and servicing passenger and commercial vehicles. The company also delivers financial services through Ford Motor Credit Company.

Result Performance for the Quarter Ended 30 June 2021 (Q2FY21)

• The total revenue increasing 38% YoY to $26.8 billion in Q2FY21, primarily driven by the rise in wholesale units to 764k in Q2FY21, up 18% YoY, from 645k in Q2FY20
• The adjusted earnings before interest and taxes stood at $1.1 billion in Q2FY21 from -$1.9 billion in Q2FY20
• Generated cash flow from operations of $756 million in Q2FY21, while the adjusted free cash flow stood at -$5.1 billion in Q2FY21 due to adverse working capital and timing differences.
• Cash and liquidity stood at $25.1 billion and $41.0 billion, respectively, at the end of 30 June 2021.

Consolidated Income Statement (Source: Company Report)

Key Updates

• On 5 October 2021, the Internet Ecosystem Innovation Committee (IEIC) advised Athanasios (Sakis) Kitsopanidis from Ford Motor, Dr. Jason Black from NVIDIA, and Sarah Keller from Uber Technologies to join as Board Members.
• On 4 October 2021, the company reported a rise in retail sales by 34.3% in September 2021 versus August 2021. Lincoln Brand retail sales grew 52.6% in the same period over August 2021.
• On 29 September 2021, the company announced that it had renewed $15.5 billion in revolving corporate credit lines, as per the priorities in Ford+ strategic plan.

Outlook

The company has further extended its position as one of the industry’s connected vehicle leaders. It currently leads the industry with 91% of owners using the FordPass mobile app compared to the 66% industry average.

Meanwhile, the company has raised its guidance on adjusted EBIT and adjusted free cash flow for FY21 to be $9-$10 billion and $4-$5 billion, respectively. The uplift in adjusted free cash flow would be led by expected favourable working capital in H2FY21. Further, its volume is expected to increase by ~30% in H2FY21, supported by market factors and net production costs.

Key Risks

The company is mainly reliant on its suppliers for components. As a result, a shortage of critical features, such as semiconductors, could adversely affect its production. The company is also exposed to the risk of defects that would hamper its new model launches and lead to recall campaigns or increased warranty costs.  

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Stock Recommendation

The company has delivered 6-month and 1-year returns of ~+28.37% and ~+106.04%, respectively. The stock is trading above the average of the 52-week high price of $16.455 and the 52-week low price of $7.57.

The stock has been valued using a P/E multiple based illustrative relative valuation method and arrived at a target price which reflects a decline of low double-digit (in percentage terms). The company might trade at a slight discount to its peers average, considering a higher debt to equity at 4.24x in Q2FY21 versus the industry median of 0.52x and a lower ROE at 1.6% in Q2FY21 versus the industry median of 3.8%.

Considering the factors above, its current trading levels, and the associated business risks, it is prudent for investors to book profits. Accordingly, we give a “Sell” rating on the stock at the current market price of $15.98 per share, (Time: 9:59 AM, NY, USA) as of 15^th October 2021.

Technical Chart:

Source: REFINITIV; Note: Purple Color Line Reflects RSI (14-Period)

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.