Case Study on Ford (F) with Nobias technology
Summary
Ford shares experienced their worst sell-off in 11 years yesterday, falling by 12.3%.
Management pre-released earnings data, highlighting lower profit forecasts in the near-term due to rising costs.
Like other large cap names, Ford management expressed concerns about the health of the broader economy in the face of hawkish Fed policies.
On Wednesday, September 21, 2022, Ford (F) shares experienced their worst trading day in 11 years when the company pre-released earnings data which highlighted unexpected product delays and higher than expected costs.
A report published by Michael Wayland on CNBC stated, “Shares of Ford closed Tuesday at $13.09 apiece, down by 12.3%. The Detroit automaker lost roughly $7 billion off its market value.” This move wasn’t quite as bad as the -13.4% performance that the company posted in early 2011 in response to a poor Q4 report; however, the stock’s double digit sell-off has certainly caught the attention of investors.
F Sep 2022
Jordyn Grzelewski, a Nobias 5-star rated author, covered Ford’s sell-off in an article published in the Sun Herald this week. Grzelewski wrote, “Ford Motor Co. reaffirmed its full-year financial guidance Monday even as it said it expects to have a "higher-than-planned" number of vehicles assembled but awaiting parts at the end of the third quarter due to supply shortages.” She highlighted the supply chain woes that automakers like Ford have been facing all year, stating, “The global automotive industry has been struggling with supply-chain issues, particularly a shortage of semiconductor chips, for well over a year. The parts shortages have curtailed automotive production and resulted in a new-vehicle inventory crunch.”
With specific regard to yesterday’s guidance, Grzelewski said, “The Dearborn automaker said in a news release that it expects to have 40,000 to 45,000 vehicles sitting and awaiting parts when the July-September quarter ends. It expects to deliver those vehicles to dealers in the fourth quarter. The vehicles awaiting parts "disproportionately include high-demand, high-margin models of popular trucks and SUVs," according to Ford.” This came as such a surprise to the market because during the second quarter, data appeared to show that these inventory issues were abating.
Regarding the Q2 figures, Grzelewski wrote, “The company ended the quarter with inventory of about 18,000 vehicles waiting for parts, down from 53,000 at the start of the April-June period.” Finally, Grzelewski concluded, “It [Ford] also gave guidance for third-quarter financial results, saying it expects adjusted EBIT to land in the range of $1.4 billion to $1.7 billion. In the second quarter, Ford reported net income of $667 million and adjusted EBIT of $3.7 billion. Through the first half of the year, the company has reported a net loss of $2.4 billion and adjusted EBIT of $6 billion.” In a separate article that Grzelewski published in The Island Packet regarding the guidance update, she stated, “Still, Ford reaffirmed its full-year guidance of adjusted EBIT of between $11.5 billion and $12.5 billion.”
Luc Olinga, a Nobias 4-star rated author, also covered the disappointing headlines in a report published at The Street. Touching upon the difficult macro environment that Ford has faced over the last several years, Olinga stated: “The Covid-19 pandemic both prompted and worsened these difficulties. Societal lockdowns to contain the spread of the virus forced carmakers to halt operations at factories in certain regions. Semiconductor shortages forced them to suspend the production of certain models.
Russia's Feb. 24 invasion of Ukraine sent raw-materials prices soaring, which increased costs and sourcing difficult [sic], particularly for electric vehicles. Both countries are suppliers of materials needed to produce EVs.” He highlighted a statement that the company made in a regulatory filing, "The supply shortages will result in a higher-than-planned number of 'vehicles on wheels' built but remaining in Ford's inventory awaiting needed parts, at the end of the third quarter.”
But, adding more uncertainty to the situation, Olinga continued, “According to industry sources, the missing parts are neither semiconductors nor other technological parts. Ford does not say which parts are missing and which models are affected.”
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.
What’s more, he said, “Ford also warned about the weakening economy and the impact of inflation, which is at its sharpest in 40 years.” He noted that Ford said that inflationary pressures are adding roughly $1 billion of unexpected costs during the third quarter.
In the short-term, he says, this news is expected to “eat into profit at the company”. “In the long term,” Olinga concluded, “it is more than possible that the car manufacturer will decide to pass on this additional and unexpected cost increase to consumers in the form of higher vehicle prices.”
Looking at the opinions expressed on Ford stock by the credible author community that Nobias tracks, we see that 53% of recent articles written about this company have expressed a “Bearish” sentiment. However, the credible analyst community is much more bullish.
Currently, the average price target that these individuals place on F shares is $21.33. None of the credible Wall Street analysts that Nobias tracks have updated their price targets for Ford yet, in response to this news. With that in mind, the consensus price target could sink lower in the coming days. However, for the time being, credible analysts are calling for immense upside potential here. After yesterday’s sell-off, F shares trade for $12.96/share. Therefore, that credible analyst average price target implies upside potential of approximately 64.6%.
Disclosure: Nicholas Ward has no F position. 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.