Stock Analysis

Ford Motor Company (NYSE:F) Should Double-Down on Cost Restructuring Before Considering Spinoffs

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Ford Motor Company 's ( NYSE: F ) stock revitalization in 2021 was one of the year's biggest stories. Flying high on the EV turnaround as well as a promising stake in Rivian, the company reached the market cap of US$100b for the first time.

Yet, a 30% drop that pushed the stock back into a single-digit P/E ratio mandates a look into the current situation.

View our latest analysis for Ford Motor

Q4 and FY 2021 Earnings

  • Non-GAAP EPS: US$0.26 (miss by US$0.15)
  • Revenue: US$37.7b (beat by US$2.08b)
  • Revenue growth: +4.7% Y/Y
  • FY Revenue: US$136.34b

Other highlights

  • Sold 1.9 million cars and trucks in the U.S in 2021 (down 7%)
  • Chip shortages caused the miss of production targets
  • 2022 FY guidance EBIT: US$11.5b-12.5b
  • EV to represent at least 40% of the product mix by 2030

Although the market reacted negatively, as per usual, this has little with missed earnings and more with mild guidance. Although the guidance range is just US$1b, it still leaves the space to beat the consensus.

Meanwhile, the company is focusing on squeezing the costs through design innovation, vertical integration, and leveraging production scale. According to the comments from the earnings call, for Mustang Mach-E, this could be up to US$1,000 per vehicle – a significant number given the traditionally slim margins in the automotive industry. This allows the company to rake in higher profits during high demand and flexible pricing through possible turmoils.

While there are rumors of spinoff going around, CEO Jim Farley acknowledged that BEV (battery electric vehicle) and ICE (internal combustion engine) vehicles have fundamentally different approaches.

Is Ford Motor still cheap?

According to our valuation model, the intrinsic value for the stock is $29.20, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low.

However, this contrasts with some institutions that recently lowered their price targets for Ford. Deutsche Bank now sees it at US$21 (from US$24), while RBC Capital Markets cut it to US$22 (from US$24).

What's more interesting is that Ford Motor's share price is quite volatile, which gives us more chances to buy since the share price could sink lower (or rise higher) in the future. This is based on its high beta, which is a good indicator of how much the stock moves relative to the rest of the market.

Can we expect growth from Ford Motor?

NYSE: F Earnings and Revenue Growth February 7th, 2022

Investors looking for growth in their portfolio may want to consider a company's prospects before buying its shares. Although value investors would argue that it's the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.

With profit expected to more than double over the next couple of years, the future seems bright for Ford Motor. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What this means for you:

Are you a shareholder? Since F is currently undervalued, you might consider boosting your stake. With some positive developments like cost savings, it seems like growth has not yet been fully factored into the share price. However, other factors such as financial health are to consider, explaining the current undervaluation.

Are you a potential investor? If you've been keeping an eye on F for a while, now is the time to go on high alert . Yet, if you're not a long-term investor, consider the technical outlook as well. So far, the price doesn't show any signs of bottoming. Before you make any investment decisions, consider other factors such as the track record of its management team to make a well-informed investment decision.

If you'd like to know more about Ford Motor as a business, it's essential to be aware of any risks it's facing. Be aware that Ford Motor is showing 3 warning signs in our investment analysis and 1 of those doesn't sit too well with us...

If you are no longer interested in Ford Motor, you can use our free platform to see our list of over 50 other stocks with high growth potential.

Valuation is complex, but we're helping make it simple.

Find out whether Ford Motor is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.

About NYSE:F

Ford Motor

Ford Motor Company develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide.

Average dividend payer and fair value.