Ford Motor Company (F) is a manufacturer, designer and marketer of trucks, cars, sport utility vehicles, electric vehicles, and luxury vehicles. Its stock has gained 84.1% over the past six months due to its strategic investments in the electric vehicle (EV) space and a recent collaboration with Google (GOOGL) to offer unique services and capabilities to Ford and Lincoln customers.
However, given investor anxiety surrounding recent product liability lawsuits filed against Ford, and its mixed financial performance, we expect the stock to retreat in the near term.
While the company’s advancement in the global automotive business and its launch of its electric Mustang Mach-E and new F-150 this year have helped its stock gain 134.1% over the past year, we think its future looks uncertain based on several factors.
Click here to checkout our Electric Vehicle Industry Report for 2021
Here’s what could influence F’s performance in the near term:
Partnership with Google Might Drive Growth
In February, F and GOOGL entered a strategic six-year partnership to accelerate F’s transformation by establishing a new collaborative group--Team Upshift--and reinventing the connected vehicle experience for Ford and Lincoln customers. The partnership should not only help F offer a superior experience to its customers but also accelerate its digital transformation. With the company is slowly moving into electric vehicles and the collaboration is expected to strengthen F’s presence in the industry.
Product Defect Lawsuit Creates Pressure
Earlier this month, the U.S. Supreme Court unanimously ruled that F could not limit the ability of injured individuals to sue manufacturers for defective products by restricting where those lawsuits can be filed. The lawsuits were filed because of two car accidents involving vehicles made by the company. If the lawsuit gets significant attention, it could make investors nervous.
Mixed Financials
F’s North America ebit was up 53% to $1.1 billion in the fourth quarter ended December 31. However, the company generated a net loss of $2.79 billion and a loss per share of $0.70 over this period. Its net cash provided by operating activities declined 59.1% sequentially to $4.54 billion.
F’s total assets have grown at a CAGR of 1.1% over the past three years. However, the CAGRs of its revenue and ebitda have declined 6.8% and 31.8%, respectively, over this period.
Analysts Expect a Pullback
Currently trading at $12.15, analysts expect F to decline 26.1% to $8.98 in the near term. Of the 17 Wall Street Analysts that rated the stock, only three rated it Strong Buy.
Mixed Profitability
F’s trailing-12-month gross profit margin of 4.8% is 85.5% lower than the industry average 33.3%. Also, the company’s negative ROE and ROA contrast with positive industry averages. However, F’s trailing-12-month cash from operations of $24.27 billion is higher than the industry average of $192.13 million.
POWR Ratings Don’t Indicate Uncertain Prospects
F has a C overall rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, F has a grade of B for Momentum, which is consistent with its increase in price over the past year.
It has a C grade for Growth, consistent with its mixed financial performance.
In addition, F has a C grade for Quality. This is justified given the company’s mixed profitability ratios.
F is currently ranked #29 of 51 stocks in the B-rated Auto & Vehicle Manufacturers industry. In addition to the grades we’ve highlighted, one can check out F’s POWR Ratings for Value, Stability, and Sentiment here.
If you’re looking for better stocks in the Auto & Vehicle Manufacturers industry with an Overall POWR Rating of A or B, you can access them here.
Bottom Line
F’s strategic partnership with Google and its rapid advancement in the electric vehicle space could help the stock keep pace with its competitors in the auto industry and benefit significantly. However, the company’s mixed financials and profitability amid lawsuit pressures could make it difficult for the stock to deliver market-beating returns in the near term. Hence, we think investors should wait for a more opportune time to invest in the stock.
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F shares were trading at $12.37 per share on Tuesday afternoon, up $0.22 (+1.81%). Year-to-date, F has gained 40.73%, versus a 5.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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