F with Nobias Technology: Case Study on Ford
Ford (F) shares have suffered mightily throughout 2022, falling by 48.42% on a year-to-date basis thus far. Analysts believe that automakers are square in the crosshairs of many of the major macro headwinds at play these days. Automakers are struggling with supply chain issues, the semiconductor shortage, rising interest rates, and soaring raw material costs. However, there are many who believe that these issues are short-term in nature and therefore, the fear related to them in the market today has created attractive opportunities for long-term investors. Ford appears to fall into this category, with an average credible analyst price target that implies immense upside potential.
In recent quarters, Ford has shown strong growth, especially from its electronic vehicle (EV) segment. Chris Lau, a Nobias 4-star rated author, covered Ford’s EV success in a recent article titled, “EV Play: GM or Ford?” In his report, Lau stated, “Last week, Ford posted EV sales doubling at around 222%. The astute investor will look at the unit sales instead. It sold 6,254 units in the month. In addition, Mach-E sales rose by 166% Y/Y.” He continued, “Ford posted U.S. sales of 154,461 vehicles in May 2022. Sales fell by 4.5%, compared to a 10.5% decline in April 2022.”
Lau noted that General Motors (GM) has taken a different path than names like Ford or Tesla (TSLA) in the EV space, cutting prices on its cars to drive consumer demand. It’s too soon to tell whether or not GM’s alternative path will work; however, in an inflationary environment, where automakers have already having trouble maintaining margins and profit levels, analysts have been wary of discounting maneuvers. Ultimately, Lau concluded, “GM and F stock are both compelling EV plays at these levels.”
F Jun 2022
But, in another recent piece published by a Nobias credible author, a more bearish opinion was offered. Both inflation and supply chain issues continue to hit the automakers, Ford included. And, in a recent article published at Yahoo Finance, Nobias 4-star rated author, Rebecca Bellan, touched upon Ford’s recent headwinds, stating, “Even though Ford has seen record profits and strong demand for electric vehicles like the Mustang Mach-E, rising battery material costs and inflation are erasing any potential profits for the new car, said Ford CFO John Lawler on Wednesday at a conference hosted by Deutsche Bank and reported on by CNBC.” She continued, “This is despite a recent price hike of the Mach-E to offset the effects of inflation.”
Bellan noted that Lawler said that the cost of producing Ford’s EVs has increased by as much as $25,000 per vehicle. This obviously creates margin headaches for the company. And, on top of that, Bellan highlights Ford’s recent recall issues, writing, “This news comes as Ford is in the midst of recalling nearly 49,000 Mach-Es because of a malfunction that could cause overheating of the vehicle's battery high-voltage contactors, which can result in loss of power while driving and cause an accident.”
Bellan continued, “The company said a simple over-the-air update will fix the problem, but if the recalls become more involved than that, it could cost the company millions.” Ballan concluded, touching upon more headwinds that the company is facing, stating, “It's not only on the automaker side that we're seeing challenges meeting commitments emerge. Customers are making payments to Ford Credit, the automaker's vehicle financing arm, later and later, said Lawler, noting that this is another sign of headwinds.” In short, there are no shortages of growth hurdles in front of Ford right now and with that in mind, investors shouldn’t be surprised to see F’s share price down more than 16% during the last month.
Lee Samaha, a Nobias 4-star rated author, also recently published an article highlighting headwinds that Ford faces, though his piece was largely focused on the ongoing issues that the automaker is facing with regard to Chinese production and supply chain concerns.
On June 13th, Samaha wrote, “Shares in vehicle maker Ford Motor Company were down by more than 6% as of midday Monday. The move follows news that China is reimposing COVID-19 restrictions after recently relaxing them and the rise in interest rates in response to a disappointing inflation report on Friday.”
Samaha noted that this report came on the heels of the U.S. inflation report for May, which included 8.6% growth on the Consumer Price Index. Samaha continued, “In response to the inflation report and the news from China, the market took the benchmark U.S 10-year Treasury yield up to 3.3% -- for reference, it started the year at 1.76%. The higher interest rates are, the more expensive it is to borrow money to finance buying large-ticket items like housing and automobiles.”
Samaha wrote, “Rising inflation and rising rates matter to Ford. Inflation pushes up costs, and rising rates choke off demand for vehicles.” Samaha specifically touched upon issues that inflation causes for Ford’s Credit segment, stating, “Rising rates may also put pressure on profitability at Ford Credit. Ford offers vehicle-related financing and leasing activities that help support demand for its vehicles. It's a highly profitable operation, generating $46 billion in earnings before taxes over the last 20 years and $4.7 billion in 2021 alone.”
During recent quarters, Ford Credit’s metrics have remained strong; however, Samaha writes, “with rates rising, it could put pressure on loan losses in the future, particularly given the current low rate.” Ultimately, Samaha provided cautious optimism for Ford shares moving forward; however, the author was quick to highlight the uncertainty surrounding shares (and the broader market) moving forward, stating:
“It's almost impossible to predict inflation and interest rate movements, and they can change course when least expected. Moreover, the lockdowns in China and the war in Ukraine are part of the reasons for the soaring inflation causing rising rates. However, both issues could be resolved in due course, so it's far too early to count Ford as a victim of an inexorably rising rate environment, particularly as underlying demand for vehicles remains strong.”
With regard to that strong demand, Mike Robinson, a Nobias 5-star rated author, recently published an article at the Street Register, which highlighted major investments that Ford is making into its production capabilities to meet consumer needs.
Robinson said, “Ford Motor (NYSE:) Co on Thursday mentioned it can make investments $3.7 billion in meeting crops in Michigan, Ohio and Missouri for manufacturing of each electrical and gasoline-powered automobiles.” He continued, “Ford mentioned $2.3 billion of the entire funding might be spent on EVs, a part of the $50 billion in EV spending by way of 2026 it beforehand outlined.”
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.
With specific regard to Ford’s EV production plans, Robinson wrote, “Ford on Thursday mentioned it can make investments $2 billion at three crops in Michigan to extend manufacturing of the brand new F-150 Lightning pickup truck to 150,000 – an motion it beforehand outlined in April – in addition to construct new variations of the Ranger pickup and Mustang sports activities automobile.”
Overall, Robinson stated, “Ford in March mentioned it was boosting its spending on EVs to $50 billion by way of 2026, up from $30 billion beforehand. It additionally mentioned it could run its EV and inner combustion engine (ICE (NYSE:)) companies as separate items in a transfer aimed toward catching EV trade chief Tesla (NASDAQ:).”
61% of recent articles published by credible Nobias authors (only those given 4 and 5-star ratings by our algorithm) have included a “Bullish” bias on shares. However, the credible Wall Street analysts (once again, only those with 4 and 5-star ratings) that we track appear to be much more bullish on Ford shares. Right now, the average price target being applied to F shares by credible analysts is $19.50. Today, F trades for just $11.23. This average price target implies upside potential of approximately 73.6%.
Disclosure: Nicholas Ward has no position in any company 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.