Ford Stock Stages A Comeback On F-150 Strength, EV Lull
Ford stock (NYSE:F) has risen by about 15% year-to-date, compared to fellow U.S. auto giant GM (NYSE:GM) which has gained close to 30% over the same period. A bulk of Ford’s gains have come over the last month or so, with the stock rising by almost 20% over the past month. Although Ford’s earnings for Q2 2024 due in the coming weeks are likely to be mixed as the company’s sales cool off a bit, amid easing consumer spending, investors likely see a couple of catalysts for Ford stock including strong sales of trucks, possibly slower capital spending on electric vehicle manufacturing capacity, and the potential for higher capital returns given the company’s rising cash flow profile. Moreover, Ford’s stock has largely lagged behind its strong financial performance in recent years, making the risk-to-reward trade-off for the stock all the more appealing. Here’s a quick rundown of the positive catalysts Ford is seeing at the moment.
Ford saw its overall volumes for Q2 rise by about 1% year-over-year. The growth was driven primarily by the company’s trucks, which witnessed a 5% growth in volumes. Sales of the flagship F-Series trucks reached 199,463 vehicles, increasing 30% sequentially likely as production of the latest 2024 F-150 truck ramped up. This could potentially bode well for the company’s average selling prices in a mixed automotive market. The F-150 series of gasoline trucks remains the company’s single most lucrative product line with higher margins for trucks compared to other body styles. The performance of the F-150 was also well ahead of rivals such as the Chevy Silverado and Dodge Ram. Ford also has a diverse powertrain lineup for its trucks, including gasoline, hybrid, and electric trucks, helping it position itself in all the segments of the truck market. For perspective, Hybrid F-150 sales rose 38% year-over-year to 33,674 units.
The previously slow pace of Ford’s EV transition was a headwind for the stock, but this appears to be easing considerably as the EV market slows down. Demand for EVs is cooling, with bellwether Tesla seeing deliveries drop nearly 5% in Q2. Slower growth in EV demand could give Ford more time to monetize its gas-based vehicles while moderating the pace of its long-term electric vehicle developments. Ford’s Model E division, which sells electric vehicles, lost $1.3 billion at an operating level, compared to the traditional auto segments that earned a combined total of $3.9 billion. Slower investments into the deeply unprofitable and slower-than-expected growth business could be viewed positively by shareholders. Additionally, the market for hybrid vehicles is picking up, with Ford seeing its hybrid sales expand considerably, rising 56% year-over-year to a new quarterly record of 53,822 units in the U.S. for Q2. This should bode well for the company’s profitability in the interim.
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Ford’s capital return program could see further improvements in the future. The company’s cash flows have been strong, with free cash flow generation for 2023 reaching approximately $6.8 billion, significantly surpassing initial projections. Ford has been paying dividends of about $0.15 per quarter, along with a special dividend of $0.18 in March. Given the robust cash flows, there is potential for additional special dividends. At present, Ford plans to distribute 40% to 50% of its annual free cash flow to shareholders. This year, the company has raised its adjusted free cash flow guidance to a range of $6.5 billion to $7.5 billion, up from the initial outlook of $6 billion to $7 billion. Unlike General Motors, which recently announced a new $6 billion stock repurchase authorization following an accelerated $10 billion repurchase last year, Ford is likely to continue focusing on dividends.
F stock has seen strong gains of 65% from levels of $9 in early January 2021 to around $15 now, vs. an increase of about 50% for the S&P 500 over this roughly 3-year period. However, the increase in F stock has been far from consistent. Returns for the stock were 136% in 2021, -44% in 2022, and 5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that F underperformed the S&P in 2022 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and HD, and even for the mega-cap stars GOOG, MSFT, and AAPL.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could F face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?
There are some concerns for the automotive market. While consumer prices in the U.S. have been rising, with the CPI up 3.3% in May, recent data shows car prices have declined. The average price paid for new vehicles declined by 3% for the first six months of this year, compared to last year, per research firm J.D. Power. Demand could also cool a bit in the near term as consumer confidence in the U.S. weakens and high interest rates make financing vehicle purchases more expensive. That being said, Ford’s valuation is still attractive, with the stock trading at 7x 2024 consensus earnings. We value Ford stock at about $15 per share, which is around 7% ahead of the current market price. We will be revisiting our price estimate for the stock post Q2 earnings, due in the coming weeks. See our analysis on Ford Valuation: Expensive Or Cheap for more details on what’s driving our price estimate for Ford. For more information on Ford’s business model and revenue trends, check out our dashboard on Ford Revenue: How Ford Makes Money.
| Returns | Jul 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| F Return | 12% | 15% | 16% |
| S&P 500 Return | 3% | 18% | 151% |
| Trefis Reinforced Value Portfolio | 2% | 9% | 672% |
[1] Returns as of 7/14/2024
[2] Cumulative total returns since the end of 2016
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