Is Ford Motor undervalued based on future cash flows and its price relative to the stock market?
Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current
share price of Ford Motor to its discounted cash flow value.
The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.
How is this discounted cash flow calculated?
- The current share price of Ford Motor is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
We assess Ford Motor's value by looking at:
- Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
- Is the PE ratio less than the market average, and/ or less than the Automobiles industry average (and greater than 0)? (2 checks)
- Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
- Is the PB ratio less than the Automobiles industry average (and greater than 0)? (1 check)
Ford Motor has a total score of 3/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (-8.66%).
Full details on the Value part of the Simply Wall St company analysis model.
Discounted cash flow (Free cash flow to Equity)
The calculations below outline how an intrinsic value for Ford Motor is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
5 year cash flow forecast
See our documentation to learn about this calculation.
|Levered FCF (USD, Millions)
||Extrapolated @ (3.13%)
||Extrapolated @ (3.13%)
||Extrapolated @ (3.13%)
Discounted (@ 15.8%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $5,989 × (1 + 2.5%) ÷ (15.76% – 2.5%)
Terminal value based on the Perpetuity Method where growth (g) = 2.5%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($39,450 / 3,974)
Value per share:
Current discount (share price of $12.36): -25%
Estimate of Discount Rate
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 15.76% = 2.47% + (1.765 * 7.53%)
Estimate of Bottom Up Beta
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
1.765 = 0.597 (1 + (1- 30%) (279.39%))
Levered Beta used in calculation = 1.765
- The risk free rate of 2.47% is from the 10 year government bond rate in United States.
- The bottom-up beta is estimated by analysing other companies in the same industry.
- The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
- The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.
How is Ford Motor expected to perform in the next 1 to 3 years based on estimates from 20 analysts?
The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.
Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
Expected earnings growth over 3 years.
Future Earnings growth analysis
Is Ford Motor expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.
Are Ford Motor's annual earnings growth expected to exceed 3.6% over the next 3 years?
- Earnings are expected to decrease over the next year.
- Earnings are expected to decrease over the next 3 years.
1 & 3 year estimated growth in earnings
Past and Future Earnings per Share
The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
Analysts growth expectations
2 year growth check
Which of the these is expected to increase by over 50% in 2 year's time?
Performance in 3 years
In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
- Ford Motor is not expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be below 20%.
Improvement & Relative to industry
- Expected to be less than the Automobiles industry average.
- A decline in Ford Motor's performance (ROE) is expected over the next 3 years.
Future performance checks
We assess Ford Motor's future performance by looking at:
- Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
- Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
- Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
- Is the Return on Equity in 3 years expected to be over 20%? (1 check)
Some of the above checks will fail if the company is expected to be loss making in the relevant year.
Ford Motor has a total score of 0/6, see the detailed checks below.
Note: If no +3 year data is available, +2.5 year data may be used.
Note 2: We use GAAP per Share in all our calculations.
Full details on the Future part of the Simply Wall St company analysis model.
How has Ford Motor performed over the past 5 years?
The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
Past earnings growth
Below we compare Ford Motor's growth in the last year to its industry (Automobiles).
Past Earnings growth analysis
We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
- Ford Motor's earnings growth has exceeded the industry average over the past year.
- Ford Motor's 1 year earnings growth exceeds its 5 year annual average (100.2% vs -10.9%).
- Ford Motor has improved earnings in the past 5 years.
Ford Motor's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
Performance last year
We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
- Strong return on shareholders funds (ROE) last year.
- Ford Motor performed worse than the Automobiles industry average based on return on assets (ROA) last year.
- Performance based on revenue producing assets (ROCE) is broadly the same over 3 years.
Past performance checks
We assess Ford Motor's performance over the past 5 years by checking for:
- Has earnings per share (EPS) increased in past 5 years? (1 check)
- Has the EPS growth in the last year exceeded that of the Automobiles industry? (1 check)
- Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
- Is the Return on Equity (ROE) higher than 20%? (1 check)
- Is the Return on Assets (ROA) above industry average? (1 check)
- Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
Ford Motor has a total score of 5/6, see the detailed checks below.
Note: We use GAAP Earnings per Share in all our calculations.
Full details on the Past part of the Simply Wall St company analysis model.
How is Ford Motor's financial health and their level of debt?
A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).
The boxes below represent the relative size of what makes up Ford Motor's finances.
The net worth of a company is the difference between its assets and liabilities.
- Ford Motor is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
- Ford Motor's long term commitments exceed its cash and other short term assets.
This treemap shows a more detailed breakdown of Ford Motor's finances.
If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
Liabilities and shares
The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
- Low level of unsold assets
- Total debt is not covered by total short term assets.
Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.
The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.
If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
- The level of debt (434%) compared to net worth is high (greater 40%).
- The level of debt compared to net worth has been reduced over the past 5 years (1579% vs 434% today).
- Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
- Interest on debt is well covered by earnings (10.7x coverage).
Financial health checks
We assess Ford Motor's financial health by checking for:
Full details on the Health part of the Simply Wall St company analysis model.
- Are short term assets greater than short term liabilities? (1 check)
- Are short term assets greater than long term liabilities? (1 check)
- Has the debt to equity ratio increased in the past 5 years? (1 check)
- Is the debt to equity ratio over 40%? (1 check)
- Is the debt covered by short term assets? (1 check)
- Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
Ford Motor has a total score of 3/6, see the detailed checks below.
What is Ford Motor's current dividend yield, its reliability and sustainability?
Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
Annual Dividend Income
Current annual income from Ford Motor dividends. Estimated to be 5.11% next year.
If you bought $2,000 of Ford Motor shares you are expected to receive $95 in your first year as a dividend.
Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account?
It is up there with the best dividend paying companies?
- Paying above low risk savings rate. (1.75%)
- Paying above the markets top dividend payers. (3.18%)
Historical dividend yield
It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.
We also check to see if the dividend has increased in the past 10 years.
- Whilst dividend payments have been stable, Ford Motor has been paying a dividend for less than 10 years.
- Dividend payments have increased, but Ford Motor only paid a dividend in the past 5 years.
Current Payout to shareholders
What portion of Ford Motor's earnings are paid to the shareholders as a dividend.
- Dividends paid are well covered by net profit (2.1x coverage).
Future Payout to shareholders
- Dividends after 3 years are expected to be well covered by net profit (2.6x coverage).
Income/ dividend checks
We assess Ford Motor's dividend by checking for:
Full details on the Dividends part of the Simply Wall St company analysis model.
- Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
- Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
- Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
- If they have paid a dividend for 10 years has it increased in this time? (1 check)
- How sustainable is the dividend, can Ford Motor afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
Ford Motor has a total score of 4/6, see the detailed checks below.
What is the CEO of Ford Motor's salary, the management and board of directors tenure and is there insider trading?
Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
Mr. Mark Fields has been the Chief Executive Officer and President at Ford Motor Co. since July 1, 2014. Mr. Fields served as the Chief Operating Officer of Ford Motor Co., from December 1, 2012 to July 1, 2014. In this role, he was responsible for overseeing Ford’s fastest global manufacturing expansion in 50 years and managing the most aggressive global product introduction schedule in its history. He served as an Executive Vice President and President of The Americas of Ford Motor Co., since October 1, 2005. In this role, he led the development, manufacturing, marketing and sales of Ford and Lincoln vehicles in the United States, Canada, Mexico and South America and was responsible for the transformation of the company’s North America operations and record profitability. He served as the Head of the North American Automobile Operations of Ford Motor Co. since September 2005. From 2000 to 2002, Mr. Fields served as the President and Chief Executive Officer of Mazda Motor Corporation, leading it through a period of significant transformation. Prior to this, he held a number of positions in both North America and South America, including managing director, Ford Argentina. He served as an Executive Vice President of Ford Europe since October 2005. He served as Executive Vice President of Premier Automotive Group at Ford Motor Co. since April 2004, where he led all activities for Ford’s premium vehicle business group and for Ford brand vehicles manufactured and sold in European countries. Prior to that, he served as Chairman and Chief Executive Officer of Premier Automotive Group. He served as Group Vice President of Premier Automotive Group at Ford Motor Co. from July 2002 to April 2004. He joined Ford Motor in July 1989. He has been a Director of Ford Motor Co. since July 1, 2014. He has been a Director of International Business Machines Corporation since March 1, 2016. He is Chair of the US-China Business Council. He was named a Global Leader of Tomorrow by the World Economic Forum in 2000 and CNBC Asia Business Leader – Innovator of the Year in 2001. Mr. Fields holds a Bachelor's degree in Economics from Rutgers University and an MBA from Harvard Graduate School of Business.
- CEO's compensation has been consistent with company performance over the past year.
- CEO's compensation appears reasonable.
Management Team Tenure
Average tenure of the Ford Motor management team:
- The tenure for the Ford Motor management team is about average.
Chief Executive Officer
Chief Financial Officer and Executive Vice President
Executive Vice President and President of the Americas
Executive Vice President and President of Europe
Board of Directors Tenure
Average tenure of the Ford Motor board of directors:
- The average tenure for the Ford Motor board of directors is over 10 years, this suggests they are a seasoned and experienced board.
Board of Directors
Chief Executive Officer
Group Vice President
Chairman of Ford Smart Mobility LLC
Group Vice President
Chairman of Ford Motor Land Development Corporation and Chief Executive Officer of Ford Motor Land Development Corporation
Recent Insider Trading
- Ford Motor insiders have sold more shares than they have bought in the past 3 months.
Who owns this company?
We assess Ford Motor's management by checking for:
- Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
- Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
- Is the average tenure of the management team less than 2 years? (1 check)
- Is the average tenure of the board of directors team less than 3 years? (1 check)
Ford Motor has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.
Note: We use the top 6 management executives and board members in our calculations.
Note 2: Insider trading include any internal stakeholders and these transactions
Full details on the Management part of the Simply Wall St company analysis model.
Ford Motor Company, together with its subsidiaries, designs, manufactures, markets, finances, and services automobiles. The company operates through two sectors, Automotive and Financial Services. The Automotive sector develops, manufactures, distributes, and services passenger cars, trucks, SUVs, light commercial vehicles, trucks, vans, and electrified vehicles, as well as offers parts and accessories. It offers vehicles primarily under the Ford and Lincoln brand names. This sector markets and sells its products through distributors and dealers, as well as through dealerships to fleet customers, including commercial fleet customers, daily rental car companies, and governments. The Financial Services sector offers various automotive financing products to and through automotive dealers. It provides financing products, including retail installment sale contracts for new and used vehicles; and direct financing leases for new vehicles to retail and commercial customers, government entities, daily rental car companies, leasing companies, and fleet customers. This sector also offers wholesale loans to dealers to finance the purchase of vehicle inventory; and loans to dealers to finance working capital and improvement of dealership facilities, purchase dealership real estate, and other dealer vehicle programs. It serves clients in North America, South America, Europe, the Middle East, Africa, and the Asia Pacific. Ford Motor Company was founded in 1903 and is based in Dearborn, Michigan.
|Name:||Ford Motor Company|
|Market Cap:||$49,115 million|
One American Road, Dearborn, 48126, United States
Ford Motor employees.
|Sector:||Automobiles and Components|