Interest charge

Ford Stock: Flash Charge up to $20 (NYSE:F)

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Investment thesis

It is obvious that Ford (NYSE:F) had recently rebounded, thanks to its excellent FQ2’22 earnings call. The stock had posted a massive 32% gain, since our previous pre-earnings article in July 2022. The company also recently doubled on its VE plans, with a production capacity 600,000 vehicles by the end of 2023 and 2 million by the end of 2026. The sum is even more ambitious than our previously aggressive estimate of 1.7 million vehicles. Therefore, we are not surprised by the recent optimism surrounding Ford stock, helped considerably by the recent Inflation Reduction Act.

However, it remains to be seen whether Ford stock can sustain its current levels as gains look a bit too fast and furious. Therefore, we prefer to advise interested investors some patience before adding to these levels. There could be a potential downside if the rally is digested after the Fed’s next interest rate hike in September 2022. We’ll see.

Ford reported excellent profitability in FQ2’22

FORD Revenue, EBIT, EBIT Margin and Gross Margin

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In the second quarter of 2022, Ford recorded revenues of $40.19 billion and gross margins of 14%, representing considerable annual growth of 50.2% and 3.3 percentage points year-on-year, respectively. Otherwise, an increase of 3.4% and 6.7 percentage points from Q2 2019 levels, which is really impressive given the current rise in inflationary costs and global supply chain issues in comparison. Although the improvement in gross margins is still far from that of Tesla (TSLA) of 25% in FQ2’22, it represents a notable improvement compared to General Motors (GM) at 12.5% ​​for the same quarter.

Meanwhile, Ford announced GAAP EBIT of $3.33 billion and EBIT margins of 8.2% in the second quarter of 2022, representing an exemplary increase of 2,378.5% and 4.4 percentage points in year-on-year, respectively. Otherwise, still an excellent increase of 774.4% and 7.6 percentage points over FQ2’19, respectively. Given the massive expansion in profitability, it’s no wonder the stock is up 46% at $16.15 at the time of writing, since hitting its low at 11.06. $ on July 6, 2022.

Cash/equivalents FORD, FCF and FCF margins

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Ford also reported improved free cash flow (FCF) generation in the second quarter of 2022, with FCF of $1.25 billion and FCF margin of 3.1%, an increase of 164% and 5.9 percentage points year-over-year, respectively. If we were to study its cash from operations, the company reported $2.94 billion in the second quarter of 2022, which is a remarkable 388.8% year-over-year increase. Otherwise, still within a reasonable distance of the FQ2’19 levels of $6.46 billion.

FORD Long-term debt, interest expense, net PPE and Capex

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If we were to study Ford’s long-term debt (excluding Ford Credit), it is also immediately apparent that management has been steadily deleveraging since the heights of the pandemic. At FQ2’22, he reported $1.53 billion in debt maturing in a year and $17.83 billion beyond a year, which turned out to be a lot less than 25 $.91 billion at FQ2’21 or $37.4 billion at FQ2’20. Thus, pointing to the competent allocation of enterprise capital.

In the meantime, Ford has continued to invest heavily with capital expenditures of $1.7 billion for net PPE assets of $37.07 billion in the second quarter of 2022. Given the reasons stated above , we are very confident about the company’s financial performance and balance sheet going forward. Thereby, potentially triggering steady stock appreciation over the long term, barring any detrimental events.

Market continues to be bullish on Ford’s advanced execution

FORD Projected Revenues and Net Income

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Over the next four years, Ford is expected to deliver excellent revenue and EBIT growth at a CAGR of 5.51% and -2.35%, respectively. Its reduced profitability could be attributed to its aggressive expansion into the electric vehicle market, on which the company has guided an ambitious production capacity of 2 million electric vehicles by 2026. Nevertheless, it is also essential to note that the estimates consensus data continues to increase Ford’s revenue growth by 8.4% since our analysis in May 2022, indicating Mr. Market’s confidence in the company’s forward execution.

Meanwhile, Ford is expected to report revenue of $146.54 billion and EBIT of $8.43 billion for fiscal year 2022, representing a notable increase in estimates of 5.7% since May 2022. It also points to 7.4% growth despite a -13.8% year-on-year decline. , respectively, the latter being mainly attributed to its loss of investments in Rivian (RIVN). Therefore, referring to Ford’s FY2022 guidelines in adj. EBIT of up to $12.5 billion, then we could see a more accurate and robust 25% annual growth in profitability. Impressive indeed, given its aggressive rise in the EV market.

We encourage you to read our previous article on FORD which would help you better understand its market position and opportunities.

  • Ford: $18 Thunderbolt – Time to add is near
  • Ford: potential for $32 billion in business value recovery in second half, aided by F-150 Lightning

So is FORD Stock a buysell or keep?

FORD 5Y EV/Revenue and P/E Ratings

FORD 5Y EV/Revenue and P/E Ratings

S&P Capital IQ

FORD is currently trading at EV/NTM Revenue of 1.05x and P/E NTM of 8.05x, below its 5-year EV/Revenue average of 1.19x, albeit high relative to its 5-year P/E average of 6.82x. The stock is also trading at $16.15, down 37.5% from its 52-week high of $25.87, but at a premium of 52.2% to its low of 52 weeks at $10.61.

FORD 5Y stock price

FORD 5Y stock price

Looking for Alpha

Although consensus estimates were more pessimistic with a price target of $17.02 and a minimum upside of 5.3% from current prices, we cannot agree. Assuming Ford is able to maintain its current financial performance, we expect the stock to easily reach over $20 by the end of fiscal 2022, if not by FQ3’22. Combined with the halo effect of the Inflation Reduction Act and Ford’s recent price hikes for the F-150 Lightning, we could see sustained stock appreciation in the near term.

However, investors should also read the fine print of the revised tax credit, as only trucks and SUVs under $80,000 would qualify. Therefore only applicable to more basic Ford models of F-150 and Mach-E. Plus, there’s still the critical battery issue that “critical materials and minerals must come from the United States or a country that has a free trade agreement with the United States.”

Ford is currently partnering with Contemporary Amperex Technology Co. Ltd (CATL), SK Innovation and LG Chem for its battery supplies. While the latter two may not appear to be an issue in the revised tax credit, it is also important to note that these South Korean battery producers imported over 80% of their key minerals from China in 2020. By therefore, provide temporary headwinds to Ford currently eligible for the tax cut, unless there is a significant change in its global supply chain.

Nevertheless, we believe that Ford would find a solution eventually, since the 2023 tax credit of up to $7.5K is already eagerly advertised on its websites. Many mineral producers in the United States, such as Livent (LTHM) and Albemarle Corporation (ALB), already supply Tesla and GM as well. However, we suspect that the resulting battery prices may not be as cheap as those in the East, given its currently high raw material prices and higher domestic labor costs. involved. We will see.

As a result, we rate FORD stock as a Hold, despite its improved financial performance. Still, as always, the bulls can still nibble on the dips, given Ford’s excellent and unique position in the electric truck segment in the US and electric van in the EU.