Leading automaker Ford (F) has presented solid second quarter financial results, driven by high demand for electric vehicles (EVs). However, the company recently announced that it continues to navigate supply chain disruptions and other economic headwinds. It expects to incur about $1 billion in inflation-related supplier costs in the third quarter, which will impact its profit margins. Despite Ford’s profit warning, let’s find out if this stock is still a buy. Continue reading….
Ford Motor Company (f) designs, manufactures, markets, and sells a broad line of Ford trucks, automobiles, electric vehicles, sport utility vehicles, and Lincoln luxury vehicles worldwide. The Company operates through three business segments: Automotive; Mobility; and Ford Credit.
F delivered solid operating results in the second quarter of 2022 despite ongoing supply, economic and political headwinds. Total revenue was $40.19 billion, up 50.2% year over year, and adjusted earnings per share rose 423.1% year over year to $0.68. The company saw strong demand for its first-generation electric vehicles, the Mustang Mach-E, the Lightning and the E-Transit.
On July 28, F introduced America’s first purpose-built electric pickup truck, the 2023 Ford F-150® lightning™ Per special service vehicle. The 2023 Ford F-150 Lightning Pro SSV joins the well-known built Ford Tough® Power and performance with the vehicle’s high-tech electric platform and innovation with Ford Pro’s real-time software and support.
The company also plans to advance its Ford+ growth plan. In July, F added battery chemicals and secured contracts securing 60 gigawatt hours (GWh) of annual battery capacity and raw material sourcing needed to ensure a global runtime of 600,000 electric vehicles by the end of 2023.
However, on September 19, F warned investors that the company expects additional costs $1 billion in cost in the third quarter of fiscal 2022 due to continued inflationary pressures and supply chain issues. The company said constraints in the supply chain have led to parts shortages affecting nearly 40,000 to 45,000 vehicles, mostly high-margin trucks and SUVs.
The stock is down 26.2% over the past six months and 43.5% year-to-date to close the last trading session at $12.31.
The following could impact F’s performance in the coming months:
For the second quarter of fiscal 2022, ended June 30, F’s total revenue increased 50.2% year over year to $40.19 billion. The company’s operating income was $2.89 billion compared to a loss of $22 million in the year-ago quarter. Adjusted EBIT increased 253.5% from the prior-year period to $3.72 billion.
Additionally, the company’s adjusted net income was $2.75 billion, up 439% year over year. Adjusted earnings per share rose 423.1% year over year to $0.68. In addition, adjusted free cash inflow was $3.60 billion compared to outflow of $5.10 billion in the year-ago quarter.
Mixed analyst estimates
Analysts expect F’s revenue to grow 11.2% year-on-year to $36.93 billion for the third quarter of fiscal 2022 (ended September 2022). However, the consensus estimate for earnings per share for the current quarter is expected to be $0.44, down 14.1% from the same period last year.
Additionally, consensus estimates for fiscal 2022 and 2023 revenues are expected to increase 16.4% and 10.4% year over year to $146.86 billion and $162.06 billion, respectively. However, analysts expect the company’s fiscal 2023 EPS to fall 3.1% year over year to $1.99.
In terms of forward non-GAAP P/E, F currently trades at 6.01, down 49.7% from the industry average of 11.95. The stock’s forward price/sales ratio of 0.34 compares to the industry average of 0.77x.
Its forward price/book of 1.06x is 54.2% below the industry average of 2.32x. Additionally, the expected price/cash flow of 4.48x is 54.1% below the industry average of 9.75x.
F is trailing 12 month EBITDA margin of 11.79% is 4.8% above the industry average of 11.25%. The trailing 12-month net income margin of 7.88% compares to the industry average of 5.86%. Likewise, the stock’s trailing-12-month leveraged FCF margin is 9.19%, up 410.4% from the industry average of 1.80%.
However, the stock’s trailing 12-month EBIT margin of 7.82% is 4.28% below the industry average of 8.17%. Its trailing 12-month ROTC and ROTA of 4.05% and 4.75% compare to industry averages of 6.91% and 5.09%, respectively. Additionally, the trailing 12-month asset turnover rate is 0.60%, down 42.1% from the industry average of 1.03%.
POWR ratings don’t indicate enough upside
F has an overall rating of C, which is neutral at our proprietary value POWR ratings System. The POWR ratings are calculated considering 118 different factors, with each factor being optimally weighted.
Our proprietary rating system also ranks each stock across eight different categories. F has a B grade for value, consistent with its valuation metrics being below the industry average. It has a C grade for quality, consistent with its mixed profitability metrics.
In addition, the shaft has a D rating for stability. The stock’s beta of 1.37 justifies the stability rating.
F is ranked 25th in D-rated 64% stock car and vehicle manufacturers Industry.
Beyond what I said above, we also gave F-notes for Growth, Mood and Momentum. Get all F ratings here.
The company reported impressive second-quarter financials, driven by strong demand for its first-generation electric vehicles (EVs). However, parts shortages and other supply chain issues continue to impact the automaker’s supplies and inventories. Ford recently said it would spend about $1 billion in the third quarter due to inflation and supply chain issues, which would further hurt its profit margins.
Given F’s dismal earnings growth estimates, mixed profitability and lack of stability, we think it’s prudent to wait for a better entry point into the stock.
How does the Ford Motor Company (F) work Stand your ground against your competitors?
F has an overall POWR rating of C. Consider these other stocks within the auto and vehicle manufacturing industry with an A (strong buy) rating: Volkswagen AG (VWAGY), Daimler AG (DDAIF) and Stellantis NV (STLA).
F-shares fell $0.07 (-0.57%) in premarket trade on Monday. Year-to-date, F is down -39.73% versus a -21.96% gain in the benchmark S&P 500 index over the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. With her fundamental approach to analyzing stocks, Mangeet seeks to help retail investors understand the underlying factors before making investment decisions.
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