Ford Motor Company (NYSE:F) Should Double Cost Restructuring Before Considering Spin-off

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

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

Check out our latest analysis for Ford Motor

Q4 and FY 2021 earnings

  • Non-GAAP EPS: US$0.26 (missing US$0.15)
  • Income: US$37.7 billion (lost US$2.08 billion)
  • Revenue growth: +4.7% Y/Y
  • FY Revenue: $136.34b

More highlights

  • 1.9 million cars and trucks sold in the US in 2021 (down 7%)
  • Lack of chips causes production targets not to be achieved
  • FY 2022 guidance EBIT: US$11.5b-12.5b
  • EVs to represent at least 40% of the product mix by 2030

Although the market reacted negatively, as usual, it has had little missed revenue and a lot more with light guidance. Even though the guidance range is just $1 billion, that still leaves room to beat consensus.

Meanwhile, the company focuses on reducing costs through design innovation, vertical integration, and increasing production scale. According to comments from the earnings call, for the Mustang Mach-E, this could be as high as US$1,000 per vehicle – a significant figure given the traditionally thin margins in the auto industry. This allows the company to earn higher profits during high demand and flexible pricing through possible volatility.

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

Is Ford Motor still cheap?

According to our valuation model, the stock’s intrinsic value is $29.20, which is above the company’s current market value. This indicates a potential opportunity to buy low.

However, this contrasts with several institutions that have 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 even more interesting is that Ford Motor’s stock price is quite volatile, which gives us more opportunity to buy as the stock price could drop lower (or rise higher) in the future. It is based on a high beta, which is a good indicator of how much the stock is moving relative to the rest of the market.

Can we expect growth from Ford Motor?

NYSE: F Profit and Revenue Growth February 7, 2022

Investors looking for growth in their portfolio may want to consider a company’s prospects before buying its stock. While value investors would argue that it is intrinsic value relative to price that matters most, the more compelling investment thesis is that it has high growth potential at a low price.

With profits expected to more than double over the next few years, the future looks bright for Ford Motor. It looks like higher cash flow is on the cards for the stock, which should feed the stock’s higher valuation.

What this means for you:

Are you a shareholder? Since F is currently undervalued, you might consider increasing your bet. With some positive developments such as cost savings, it looks like growth has not been fully factored into the share price. However, other factors such as financial health must be considered, 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 be wary. However, if you are not a long-term investor, also consider the technical prospects. So far, the price is showing no signs of bottoming. Before you make an investment decision, consider other factors such as the track record of the management team to make the right investment decision.

If you want to know more about Ford Motor as a business, it’s important to be aware of the risks it faces. Know that Ford Motor is performing 3 warning signs in our investment analysis and 1 of them didn’t suit us…

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

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

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