Can Ford Stock Return To Its Pre-Inflation Shock Highs

Ford stock (NYSE: F) currently trades at $14.40 per share, about 43% below the levels seen on January 15, 2022 (pre-inflation shock high), and it seems like it has some room for growth. Ford saw its stock trading at around $11 at the end of June 2022, just before the Fed started increasing rates, and has gained around 30% since. In comparison, the S&P 500 gained close to 17% during this period. While Ford stock was impacted by supply chain issues and the semiconductor shortage through much of 2022, things appear to be looking up as inflation shows signs of easing and component supply picking up for the automotive industry.

Returning to the pre-inflation shock level means that Ford stock will have to gain 75% from here. However, we estimate Ford’s valuation to be around $17.80 per share, about 28% above the market price. While we think that Ford will benefit from better supply chain conditions, which should help drive revenue growth this year, there are concerns as well given the recent uncertainty in the financial sector has investors worried about a potential recession. 

Our detailed analysis of Ford’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

• 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
• Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply
• April 2021: Inflation rates cross 4% and increase rapidly
• Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
• June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
• July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
• Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.

In contrast, here’s how Ford stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

• 10/1/2007: Approximate pre-crisis peak in S&P 500 index
• 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
• 3/1/2009: Approximate bottoming out of S&P 500 index
• 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Ford and S&P 500 Performance During 2007-08 Crisis

Ford stock declined from a little over $8 in September 2007 to just $2 as of March 2009 (as the markets bottomed out), implying F stock lost nearly 75% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $10 in early 2010, rising roughly 5x between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Ford Fundamentals Over Recent Years

Ford’s revenues declined from $155.9 billion in 2019 to $127 billion in 2020 due to the impact of Covid-19 on the automotive sector. However, over the last twelve-month period revenues stood at about $165 billion. This can be attributed to a strong recovery in demand post-pandemic-induced lockdowns and easing supply chain issues. Moreover, Ford has also been able to prioritize higher-end vehicles and pickup trucks and this helped its average selling prices. Ford’s earnings fell from around $0.01 per share in 2020 to a loss of -$0.49 per share in 2022.

Does Ford Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Ford’s total debt decreased from $52 billion in 2019 to $48 billion now, while its total cash stood at $39 billion including its financing operations. It also garners about $11 billion in cash flows from operations. The company’s financial position is healthy, and it appears to be in a good position to meet its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe Ford stock has the potential for good gains once fears of a potential recession are allayed. That said, fears of a potential recession and concerns about automotive demand could weigh on the company’s returns in the near term.

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[1] Month-to-date and year-to-date as of 6/17/2023
[2] Cumulative total returns since the end of 2016

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