Ford Motor Company

F Details

Based in Dearborn, Michigan, Ford Motor Company (NYSE: F) is a global automobile company and is engaged in designing, manufacturing, marketing, and servicing a full line of connected, increasingly electrified passenger and commercial vehicles. Its vehicles comprise of Ford trucks, utility vehicles, vans and cars, and Lincoln luxury vehicles. The company also delivers financial services through Ford Motor Credit Company.

Robust Performance in Q2FY21 (For the Period Ended 30 June 2021)

• The company has delivered better-than-expected operating results in Q2FY21 with total revenue increasing to $26,752 million from $19,371 million in Q2FY20.
• The company leveraged robust demand to boost revenue and profits by giving lower incentives and a favorable mix of vehicles that resulted in delivering adjusted earnings before interest and taxes of $1.1 billion in Q2FY21.
• Ford’s auto business in North America posted a positive EBIT in Q2FY21 with an increase of $1.1 billion over the pcp.
• It has generated cash flow from operations of $756 million, while the adjusted free cash flow stood at a negative $5.1 billion due to adverse working capital and timing differences.
• Cash and liquidity stay robust at $25.1 billion and $41.0 billion, respectively, at the end of 30 June 2021.

Exhibit 1: Performance Trend

Source: Analysis by Kalkine Group

Strong Expansion in Retail Orders in July 2021

Mustang Mach-E Sales Increased by 15.8%: The company witnessed strong growth in its retail order bank that increased over 70,000 units, excluding Bronco and Maverick retail orders. This reflects 10 times the normal retail order rate compared to pcp. The sales of Mustang Mach-E in July 2021 increased by 15.8% over June 2021 and have achieved the second position in the fast-rising battery electric sport utility segment through July 2021.

Record Sales of Electrified Vehicle: Its electrified vehicle portfolio attained a fresh sales record in July 2021 with its electrified vehicle sales increased by 57.5% to 9,103. Mustang Mach-E and F-150 PowerBoost Hybrid topped the list with sales of 2,854 and 4,498, respectively. Further, the company witnessed record sales of F-150 PowerBoost Hybrid, up 23.4% compared to June. The company also augments its electrifying presence in California.

Increased Transaction Prices: The transaction prices grew by around $8,400 at almost $50,000 per vehicle in July 2021 driven by the launches of new truck and SUV vehicles as well as 6.7% YoY growth in sales of high series trim SUVs.

Formed Collaboration to Launch Self-Driving Vehicles on Lyft Network

As per the press release dated 21 July 2021, the company and Argo AI, Lyft have formed a collaboration towards commercialising autonomous ride-hailing at scale. The collaboration will emphasise on creating a viable autonomous ride-hailing service that comprises self-driving technology, vehicle fleet, and transportation network that will be required to provide further scale to business as well deliver an exceptional experience for riders. As part of the collaboration, Argo AI and Ford will install Ford self-driving cars, with safety drivers, on the Lyft network. The passenger rides are to commence in Miami by the end of 2021 and in Austin in 2022.

Sales in China Rose 24% in H1FY21

Ford China achieved a sales growth of 24% YoY in H1FY21 that surpassed 306,700 vehicles supported by record Lincoln sales and double-digit growth in SUV and commercial vehicle sales. Sales of Lincoln luxury vehicles increased by 111.4% to over 42,200 units, while sales of Ford brand SUV and Transit commercial vehicles surpassed 57,900 units and 26,800 units, respectively, up by 35.7% and 22.5% compared to the year-ago period.

Key Metrics

Ford witnessed a revenue growth of 38.1% yoy to $26,752 million in Q2FY21 from $19,371 million in Q2FY20. Further, the company’s current ratio remained stable over Q3FY20-Q2FY21. The company’s current ratio rose to 1.21x from 1.20x in Q3FY20. The improvement in the current ratio indicates that the company possesses better capabilities to meet short-term obligations.

Exhibit 2: Key Financial Metrics

Source: Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form 26.53% of the total shareholding while the top four constitute the maximum holding. Notably, The Vanguard Group, Inc. and BlackRock Institutional Trust Company, N.A. are holding a maximum stake in the company at 7.56% and 4.55%, respectively, as also highlighted in the chart below.

Exhibit 3: Top 10 Shareholders

Source: Analysis by Kalkine Group

Key Risks

The company is mainly reliant on its suppliers for components. A shortage of key components, such as semiconductors, could adversely affect its production. The company is also exposed to the risk of defects that would hamper its new model launches and would lead to recall campaigns or increased warranty costs.

Further, cyber incidents and other disruptions are some other potential risks that would impact the operational systems, security systems, and vehicles. It is also prone to fluctuations in commodity prices, foreign currency exchange rates, interest rates, and market value of Ford or Ford Credit’s investments that could hurt its results.

Outlook

The acquisition of Electriphi is expected to boost its electric fleet adoption as it aids in offering commercial customers depot charging management for vehicles such as ETransit and F-150 Lightning Pro. Currently, the company’s E-Transit has more than 20,000 reservations and growing.

Meanwhile, the company has raised its guidance on adjusted EBIT and adjusted free cash flow for FY21 to between $9 billion and $10 billion and in the range of $4 billion and $5 billion, respectively. The upliftment in adjusted free cash flow to be led by expected favourable working capital in H2FY21. Further, its volume is expected to increase by approximately 30% in H2FY21 compared to H1FY21 supported by improvement in market factors net of production costs.

The company stated that U.S. customer-sold order bank exits Q2FY21 by over 7x over year-ago period. This coupled with lined up launches may accelerate sales post the normalisation of semiconductor supplies.

Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period) 

Stock Recommendation

The stock of the company rose by ~41.3% in 9 months. It has made a 52-week low and high level of $6.41 and $16.455, respectively.

The stock has been valued using Price/EPS multiple-based illustrative relative valuation and has arrived at a target price that reflects a rise of low double-digit (in % terms). A slight premium has been applied to Price/EPS Multiple (NTM) (Peer Average), considering continued acceleration in its retail orders, strong portfolio of new products, and strong transaction pricing.

For the purposes of relative valuation, Goodyear Tire & Rubber Co,  Harley-Davidson Inc, among others have been considered.

Considering the aforementioned factors, improved guidance, and strong liquidity position, we give a “Buy” recommendation on the stock at the current market price of $12.95 per share (10:00 AM, Washington, DC, USA Time) on 31^st August 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.