Investors eyeing U.S. legacy automaker Ford F have an intriguing proposition on their hands. The stock is presently trading at an enticing discount when considering its valuation metrics. Ford’s forward sales multiple of 0.26 currently sits below its five-year average, painting a compelling picture of affordability for potential buyers. Moreover, compared to its industry peers, including General Motors GM, Ford appears attractively valued. The intrinsic allure is further enhanced by Ford’s impressive Value Score of A.
Ford’s Undervalued Shares
Delving deeper, Ford’s cash flow trajectory tells a promising story. The company recently upped its adjusted free cash flow (FCF) projection for 2024 by a significant $1 billion, now anticipating a range of $7.5-$8.5 billion. From a price-to-cash flow perspective as well, Ford remains a standout, showcasing robust value potential at its current trading price.
Ford’s Resilient Ford Pro Business Unit
Ford’s Ford Pro division, specializing in commercial vehicles and services, emerged as a star performer in the second quarter. With an impressive 7% EBIT rise to $2.6 billion and a lucrative 15% margin, the segment’s revenues also surged by 9% to reach $17 billion. Noteworthy demand for Super Duty trucks and Transit vans prompted Ford to announce the construction of a third assembly plant in Ontario by 2026 to cater to the high demand. Additionally, subscriptions to Ford Pro software spiked by 35% in the June quarter, while mobile repair orders serviced by its 2,000-vehicle fleet doubled.
Ford’s Sound Liquidity and Investor-Friendly Approach
Boasting around $27 billion in cash and over $45 billion in liquidity at the close of the second quarter in 2024, Ford is in a robust liquidity position. This financial stability lays a solid groundwork for investments in its Ford+ initiatives. The company’s commitment to shareholders is evident through a generous dividend yield exceeding 5%, surpassing the S&P 500 average yield by a substantial margin. Furthermore, Ford targets distributing 40-50% of its free cash flow (FCF) in the future, underscoring its dedication to enhancing shareholder value.
Ford’s EV Business Strategy in the Spotlight
Ford’s strategic focus on electric vehicles (EVs) highlights a forward-looking approach. With popular EV models such as the Mustang Mach-E, E-Transit vans, and F-150 e-pickups, Ford is poised to drive future shipments in the EV space. The company’s commitment to expanding its EV portfolio is evident through plans to introduce new electric van models and pickup trucks in the coming years. Furthermore, Ford’s slated commencement of battery cell production in Tennessee in 2025 marks a crucial step towards securing the EV supply chain for its upcoming models.
Challenges and Cautionary Outlook for Ford Stock
Despite the attractive valuation, Ford’s near-term outlook for its EV segment appears grim. The company anticipates widening losses in the EV business, projecting a loss range of $5-$5.5 billion this year due to pricing pressures and increased investments in next-generation EV technologies. Moreover, a trimmed EBIT forecast for the Blue unit, focusing on internal combustion engine (ICE) and hybrid models, adds to the cloud of uncertainty surrounding Ford’s short-term prospects.
Considerations for Potential Investors
Although Ford’s stock price has declined by 12% over the past six months, underperforming broader market indices and General Motors, caution is advised for prospective investors due to prevalent near-term challenges. Despite this, existing shareholders with a long-term investment horizon are encouraged to retain their positions in Ford, awaiting potential turnarounds in the future.
Seasoned Insights into Ford’s Market Performance
Ford currently carries a Zacks Rank #3 (Hold), indicating a nuanced stance on the stock. For a comprehensive overview of up-and-coming stock options, explore the latest Zacks #1 Rank (Strong Buy) stocks.
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