Auto sales were down last year due to high inflation, rising interest rates, and supply chain disruptions. Sales of new vehicles last year dropped to their lowest level since 2011. Over 13.75 million light vehicles were sold last year, representing a year-over-year decline of 8% to 9%.

However, auto industry executives remain optimistic that auto sales will rebound this year. Cox Automotive forecasts new-vehicle sales for 2023 to increase 3% year-over-year to 14.20 million units.

In this piece, I have discussed why waiting for a better entry point in Ford Motor Company (F) could be prudent.

F’s total vehicle sales in May 2023 rose 10.7% year-over-year to 170,933. F surpassed the consensus EPS and revenue estimates in the first quarter. Its revenue beat analyst estimates by 4.5%, while its EPS came 54.5% above the consensus estimate.

During the first quarter, F was America’s best-selling brand, having sold 456,972 vehicles, up 10.7% year-over-year. The company also became the country’s number 1 truck manufacturer during the quarter, with sales rising 19.6% over the prior-year quarter. Moreover, F’s electric vehicle (EV) sales were up 41% year-over-year to 10,866 vehicles.

F’s VP, sales, distribution, and trucks, Andrew Frick, said, “Ford is off to a fast start to the year. Ford’s sales growth and investments are a direct result of strong customer demand across our truck, SUV, and electric vehicle segments. And this year’s highly anticipated new product launches with Super Duty, Escape, Mustang, and Ranger, will only add to this momentum.”

The company is investing C$1.8 billion in its Oakville Assembly Complex to transform it into a high-volume hub of electric-vehicle manufacturing in Canada. The investment is part of F’s plan to scale the production of electric vehicles.

On May 25, 2023, F announced the signing of an agreement with Tesla, Inc. (TSLA), under which the company’s vehicle owners will be granted access to over 12,000 TSLA superchargers across the U.S. and Canada starting in early 2024. Also, F’s next-generation EVs will include TSLA’s charging plug helping Ford vehicle owners charge at Tesla superchargers without an adapter.

For fiscal 2023, F forecasts adjusted EBIT of between $9 billion and $11 billion and adjusted free cash flow of $6 billion. The company’s EBIT for Ford Blue is expected to come in at $7 billion.

F’s stock has gained 15.9% in price over the past month and 24.1% year-to-date to close the last trading session at $13.74.

Here’s what could influence F’s performance in the upcoming months:

Robust Financials

F’s total revenues for the first quarter ended March 31, 2023, rose 20.3% year-over-year to $41.47 billion. Its adjusted EBIT increased 45.3% year-over-year to $3.38 billion. The company’s adjusted net income increased 61.4% over the prior-year quarter to $2.53 billion. Its EPS came in at $0.63, representing an increase of 65.8% year-over-year.

Mixed Analyst Estimates

Analysts expect F’s EPS for fiscal 2023 and 2024 to decline 3.9% and 4.2% year-over-year to $1.81 and $1.73. Its fiscal 2023 and 2024 revenue is expected to increase 8.4% and 1.5% year-over-year to $161.52 billion and $163.92 billion. 

Its EPS for the quarter ending June 30, 2023, is expected to decline 31.7% year-over-year to $0.46. Also, its revenue for the same quarter is expected to increase 7.6% year-over-year to $40.81 billion.

Mixed Valuation

In terms of forward non-GAAP P/E, F’s 7.60x is 47% lower than the 14.34x industry average. Its 0.34x forward Price/Sales is 60.3% lower than the 0.86x industry average. Likewise, its 1.21x forward Price/Book is 52.9% lower than the 2.57x industry average.

On the other hand, in terms of forward EV/EBITDA, F’s 10.41x is 8.5% higher than the 9.59x industry average. Likewise, its 15.90x forward EV/EBIT is 20.2% higher than the 13.23x industry average.

Mixed Profitability

F’s 1.75% trailing-12-month net income margin is 59.1% lower than the 4.28% industry average. Likewise, its 8.65% trailing-12-month EBITDA margin is 20.7% lower than the 10.90% industry average. Furthermore, the stock’s 10.70% trailing-12-month gross profit margin is 69.6% lower than the industry average of 35.15%.

On the other hand, the stock’s 4.41% trailing-12-month Capex/Sales is 35.8% higher than the industry average of 3.25%.

POWR Ratings Reflect Uncertainty

F has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. F has a C grade for Sentiment, in sync with its mixed analyst estimates.

It has a C grade for Quality, consistent with its mixed profitability.

F is ranked #27 out of 58 stocks in the Auto & Vehicle Manufacturers industry. Click here to access F’s Growth, Value, Momentum, and Stability ratings.

Bottom Line

F is progressing rapidly toward a fully-electrified future with its new launches, strategic agreements, and investments. The company is working toward closing the gap with its competitors, but there is still much ground to make up as competitors also invest heavily to expand their market share.

Moreover, the company expects to lose $3 billion this year on EV sales. Sales of its electric vehicles are only expected to lead to a profit margin of 8% by the end of 2026.

Given the mixed analyst estimates and profitability, it could be wise to wait for a better entry point in the stock.

How Does Ford Motor Company (F) Stack Up Against Its Peers?

F has an overall POWR Rating of C, which equates to a neutral rating. Therefore, you might want to consider investing in different Auto & Vehicle Manufacturers stocks with an A (Strong Buy) or B (Buy) rating, such as Honda Motor Co., Ltd. (HMC), Stellantis N.V. (STLA), and Isuzu Motors Limited (ISUZY).

What To Do Next?

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F shares fell $13.74 (-100.00%) in premarket trading Monday. Year-to-date, F has gained 27.72%, versus a 13.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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