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.
• 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 stood at $25.1 billion and $41.0 billion, respectively, at the end of 30 June 2021.

Consolidated Income Statement (Source: Company Report)

Indian Operations Restructuring

The company, on 9 September 2021, declared the restructuring of India operations with plans to significantly expand its Chennai-based Ford Business Solutions team. Further, it plans to serve its customers in India with iconic global vehicles and electrified SUVs including the Mustang coupe while ceasing vehicle manufacturing in India.  The manufacturing of vehicles for export will be closed at the Sanand vehicle assembly plant by Q4 2021, and Chennai engine and vehicle assembly plants by Q2 2022.

It will continue manufacturing engines for export along with its entire customer support operations of providing service, aftermarket parts, and warranty support.

Sustained Expansion in Retail Orders in August 2021

• The company witnessed 6.5% growth in its retail sales in the month of August 2021 compared to the last month driven by improvement in production as well as inventories.
• The company has added a further 41,000 new retail orders in August 2021 that was 4 times higher compared to a year ago. The company’s total order bank at the end of August stood at 52,000 vehicles.
• Driven by improved availability, F-Series retail sales expanded by 11% compared to July, thus enabling the company to register its best F-Series sales month since the chip shortage started, and F-150 Lightning currently crossed 130,000 reservations.
• Production output increased by 78.8% while inventory increased by 34.4% in August in comparison to July. The average transaction pricing reached a record high of around $50,800 per vehicle – an increase of $9,700 over last year.
• Sales of the electrified vehicle increased by 67.3% over last year for a total of 8,756 vehicles.

Key Risks

The company is  reliant on a timely supply of components from its suppliers.  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. 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 company has further extended its position as one of the industry’s connected vehicle leaders as it currently leads the industry with 91% of owners using the FordPass mobile app compared to the 66% industry average.

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 uplift in adjusted free cash flow would 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.

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

For the purpose of relative valuation, peers like General Motors Co (GM.N), Thor Industries Inc (THO.N), 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 $12.68 per share, down by 0.63% on 10^th September 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.

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