F with Nobias technology: Down 25% Year-To-Date, Could Ford’s EV Aspirations Turn The Stock Around?
When most investors hear the phrase electronic vehicle, Tesla (TSLA) likely comes to mind. Or maybe, if you’re into emerging markets, a Chinese EV manufacturer, like NIO Inc (NIO) may take center stage in your mind’s eye. Depending on your tastes, one of the European Luxury companies may ring a bell. Or, maybe one of the new EV IPOs, like Rivian (RIVN) or Lucid (LCID) Motors seems most promising. In short, the U.S. legacy automakers famous for their traditional ICE (internal combustible engines) cars and trucks aren’t likely to be most investors’ top choices in the electric vehicle space. However, due to large investments and ongoing innovation from companies like the Ford Motor Company (F) this viewpoint may be outdated and flawed.
Ford is vying to become one of the world’s leaders in the EV space over the coming decades and with that in mind, F shares could represent an attractive bargain for investors who aren’t interested in paying the speculative growth premiums usually associated with many of the EV companies and startups that exist in today’s market.
Ford shares have struggled year-to-date, falling by 24.99% thus far during 2022. During the last month alone, F shares are down 9.58%, in large part, because of a disappointing Q4 report published in early February. However, even though F shares are currently out of favor in the market, Nobias 5-star rated author, Daniel Foelber, recently published an article titled, “Is Ford the Best EV Stock to Buy and Hold for Decades?” in which he expressed a very bullish outlook for shares.
F March 2022
Foelber noted Ford’s recent double digit post-earnings pullback; however, he said, “Impressive demand for electric vehicles (EVs) like the Mustang Mach-E SUV, the F-150 Lightning pickup, and the E-Transit electric van show promise that Ford's long-term goals remain intact.” Furthermore, he noted that the company’s long standing success in the ICE space is likely to translate into success in the EV space as well.
Foelber said, “According to Ford, its EV business moves faster and requires better vertical integration to be profitable. That means procuring parts, batteries, and chips ahead of time or producing batteries in-house to control more of the supply chain.” He continued, “Ford mentioned that having a superior supply chain, low operational costs, and efficient production can be key competitive advantages that will help its margins as it grows its EV business.” And, unlike several of its competitors, Foelber says that the company’s existing manufacturing expertise and unique capabilities have allowed Ford to produce profitable EV models from the start. He said, “The Mustang Mach-E is already profitable. But just in January, Ford identified $1,000 of cost savings it can implement for future models.”
With regard to the company’s profits, he said, “Ford is guiding for 2022 adjusted EBIT between $11.5 billion to $12.5 billion, which would be an increase of 15% to 25% compared to 2021. It would also give Ford a price-to-EBIT ratio of just 5.98, giving Ford an inexpensive valuation especially considering its growth rate.” Foelber highlighted Ford’s plans to use these profits to invest into future EV capacity. He said that the company plans to invest $11.4 billion into EV battery and vehicle manufacturing plants in Kentucky and Tennessee over the coming years, noting that doing so is “an extremely capital-intensive endeavor, but it's necessary if Ford wants to hit the goal to have EVs make up 40% of total sales by 2030, a goal that Ford reiterated on the investor call it is on track to hit.”
Ultimately, Foelber concluded his report by shining a very bullish light on F shares saying, “Given Ford's growth prospects, aggressive spending, dedication to growing battery and EV production, inexpensive valuation, high profitability, and its dividend, there's an argument that Ford is the single best all-around automotive stock for 2022 and beyond.”
Nobias 4-star rated author, Rekha Khandelwal, recently touched upon Ford’s EV aspirations in her report on the industry titled, “4 Supercharged Electric Vehicle Stocks to Buy in 2022 and Beyond”. With regard to Ford, Khandelwal wrote: “Ford Motor Company offers a relatively safer way to gain exposure to the EV growth story. While the stock may not rise as much as that of pure-play EV companies, the downside risk could also be less. Ford intends to make 40% to 50% of its vehicle sales electric by 2030. If Ford achieves that target, while also providing features like over-the-air software updates and other subscription and software services that can generate a recurring revenue stream for it, the company could see a meaningful uptick in its margins. That could pave the way for a steady rise in Ford's stock price.”
In a separate article focused on the electric vehicle industry titled, “3 Top EV Stocks to Buy During the Market Correction” Khandelwal highlighted Ford’s recent success in the marketplace. She said, “Ford is already executing on its electrification strategy. It intends to increase its EV production capacity to 600,000 vehicles by 2023. By 2030, the automaker aims to make 40% to 50% of its deliveries electric.” She continued, “The company is witnessing robust demand for its electric models. Ford sold 27,140 Mustang Mach-E vehicles in 2021, making it the second-best-selling electric SUV in the U.S., behind Tesla's Model Y. Similarly, its upcoming electric pickup truck, the F-150 Lightning, has received immense interest from buyers. The company already has 200,000 reservations for the truck, and deliveries are expected to begin in spring. All in all, Ford could well be a top beneficiary of the ongoing transition to electric vehicles.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
The Value Pendulum, a Nobias 4-star rated author, recently published a more reserved article on Ford on Seeking Alpha, highlighting their “hold” opinion on shares. The Value Pendulum wrote: “In my opinion, Ford will eventually separate its ICE and EV businesses, and this is the key mid-to-long term catalyst for the stock that will increase the chances of its share price returning to $30 in the future. As with any company owning and operating multiple businesses, F suffers from a holding company or conglomerate discount. By having the EV business being spun off as a separate listed entity with its own independent market valuation, it will be much easier for investors to appreciate the growth of its EV segment and award a much higher valuation to the parent company, Ford.
Unfortunately, this catalyst is unlikely to be realized in the short term going by the company's comments.” Looking at the aggregate opinion of the credible authors tracked by the Nobias algorithm (only those with Nobias 4 and 5-star ratings) we see that 75% of recent articles published on Ford have expressed a “Bullish” opinion. Looking at the price targets being applied to Ford shares by credible (once again, 4 and 5-star rated) Wall Street analysts, we see an average price target of $22.40 currently being applied to F shares.
After its recent weakness, Ford currently trades for $16.04/share. Therefore, that average price target implies upside potential of approximately 38%.
Disclosure: Nicholas Ward has no position in any stocks mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.