Why is Ford Motor Stock Down Today?
21 September 2022 - 4:52AM
Finscreener.org
Shares of automobile
manufacturing giant Ford Motor Company
(NYSE:
F) are trading lower by
almost 5% in early market today. The pullback was due to Ford’s
disclosure that supplier costs will be $1 billion higher in Q3 than
initial forecasts. Ford attributed the higher costs to inflation
and ongoing supply chain issues.
Ford also explained that
disruptions in supply chains have resulted in a backlog of
thousands of vehicles that are yet to be shipped. It expects
between 40,000 and 45,000 incomplete vehicles to remain in
inventory by the end of Q3 due to a shortage of parts.
The supply chain is hurting Ford and its
peers
Several automobile manufacturers
have been wrestling with supply chain bottlenecks since the start
of the COVID1-19 pandemic. While most economies have reopened,
China which is a global manufacturing hub continues to impose
lockdowns if there is a spike in COVID-19 cases.
Last month,
Rivian (NASDAQ:
RIVN) warned its losses might surge to $5.45 billion
in 2022, compared to an initial estimate of $4.75 billion. Its
higher losses are tied to raw material inflation and supply chain
challenges.
Additionally, in July,
General Motors (NYSE:
GM) reported a net income of $1.69 billion, a
decline of 40% year-over-year, again due to chip shortages and
supply chain concerns that resulted in bottlenecks at its
factories.
Despite an inflationary
environment, Ford has maintained its adjusted EBITDA (earnings
before interest, tax, depreciation, and amortization) guidance of
between $11.5 billion and $12.5 billion in 2022, as the company
expects to sell the excess inventory in Q4 of this year.
Ford stock price has massive upside
potential
While Ford is a legacy automobile
manufacturer, it is now fast gaining traction in the electric
vehicle segment. In July, Ford’s total sales rose 36.6%
year-over-year, while EV sales almost tripled to 7,700 units. In
the first seven months of 2022, Ford has sold 30,648 vehicles
gaining some serious momentum year-to-date.
Ford managed to outpace the
broader market, as total auto sales fell by 10.5% in July. So, Ford
is experiencing strong demand allowing it to gain market share from
peers.
During its Q2 earnings call,
Ford’s CEO Jim Farley emphasized, “We believe that these great new
products will help us to grab an outsized share of the rapidly
growing EV market, combined with our healthy and vibrant shares of
our ICE [internal combustion engine] and growing hybrid
markets.”
Ford now expects to end 2023 with
a monthly EV production capacity of 60,000 units. It also aims to
increase manufacturing capacity by two million EVs by the end of
2026. Ford sold 3.9 million vehicles in 2021. So, EVs
should account for at least a third of the total automobile sales
for Ford by 2026.
In Q2 of 2022, Ford
increased revenue by
$13.4 billion year over year to
$40.2 billion. Due to its improving financials, it increased
quarterly dividend payments by 50% to $0.15 per share, indicating a
forward yield of 4%.
So, an investment of $10,000 in
Ford stock would allow investors to generate $400 in annual
dividend payments.
Ford stock is undervalued
Valued at a market cap of $60
billion, Ford is expected to increase sales by 16% to $146 billion
in 2022 and by 7.6% to $157 billion in 2023. So, itU+02019s valued
at 0.41x forward sales. Ford stock is also trading at 7.2x forward
earnings, which is quite attractive, given its adjusted earnings
are forecast to rise by 13.5% annually in the next five
years.
General Motors (NYSE:GM)
Historical Stock Chart
From Apr 2024 to May 2024
General Motors (NYSE:GM)
Historical Stock Chart
From May 2023 to May 2024