Ford Might Just be Fabulous

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The U.S. Government is incentivizing consumers to go green by offering them a tax credit on new EV purchases. However, not all EV cars will qualify. 

Of course, when it comes to EVs, Tesla (TSLA) is the king. However, competition is heating up. And several established automakers are making big bets to try to catch up with them. 

One of them is Ford (F), which already makes some of the most popular non-EV cars on the market, like the Mustang, Bronco, and F-150 truck.

The company is investing $50 billion to make electric vehicles. 

Search results for the company recently spiked after they announced 3,000 job cuts in the U.S., Canada, and India.

And although the company doesn’t garner the interest of buzzworthy Tesla, it still trounces the other legacy automakers.

With auto inventories in short supply, we wanted to dig into the company and learn more about what they offer.

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Ford’s Business

Ford (F) designs, manufactures, markets, and services cars, SUVs, vans, and trucks. 

The company is credited for creating the first massed-produced vehicle, the Model T, in 1908. 

Now, it’s focused on becoming a player in the global EV revolution. Ford plans to produce 600K EVs by 2023 and reach 2M units by the end of 2026. If it can accomplish its 2026 goals, it would represent a compound annual EV growth exceeding 90%. 

Along the way, Ford expects 40% of its global vehicle volume to be all-electric by 2030. 

Its Blue Oval Intelligence is a next-generation, cloud-based platform for integrating electrical, power distribution, computing, and software systems connected to Ford and Lincoln vehicles. It believes it can increase revenues through connected technology.

Furthermore, iconic Ford models like the Mustang and Bronco are transitioning into EVs. As well as the F-150 Lightning, an all-electric version of the world’s most popular pickup truck.  

Financials

During 2019-2020, F experienced a slowdown in growth. However, it bounced back in 2021, as growth profit went from $5.7 billion in 2020 to $16.4 billion in 2021. Its revenues (ttm) stand at $148 billion, and its gross profit (ttim) is $16.5 billion, its highest total since 2016. 

During Q2 2022, F posted revenue of $40.2 billion on a 35% increase in wholesale shipments and favorable pricing and vehicle mix.

In addition, it reported $2.9 billion in operating cash flow, with solid automotive profitability, raising its quarterly dividend to $0.15 per share. 

During its most recent quarter, F had $28.2 billion in total cash, and $130.2 billion in total debt, while sporting a market cap of $60.6 billion. 

Valuation

F has a P/E GAAP (ttm) of 5.48x, which is better than its rivals GM 7.54x, and Tesla 107x. Furthermore, it has a better price-to-sales, 0.43x, compared to GM at 0.44x and Tesla at 13.53x. And unlike GM and Tesla, Ford rewards its investors with a dividend yielding nearly 4%.

The company also boasts a phenomenal price-to-cash flow ratio of 5.15x and a healthy dividend yield of 2.83%

Profitability

F Operates at a gross profit margin of 12%, which is not as good as GM at 13.59% or Tesla at 27.1%. However, it’s likely to improve those numbers as it gets more into connected services and other high-margin services like software. Ford’s return on equity is right on par with Tesla, 29.39% vs. 29.89%, and significantly better than GM at 13.63% 

Furthermore, F has a net income margin of 7.88%, which is significantly better than its 5-year average of 2.67%

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Our Opinion 10/10

Ford is one of the most iconic brands in American history and is making strides toward becoming an EV company. We believe the EV versions of Bronco, Mustang, and F-150 will do well. 

Shares are down 27% YTD. But we think that it’s a buying opportunity even with its recent 52-week highs of $25.87 not that far away.