Saturday, January 19, 2019

Ford Motor: Overtake Potential in 2019? - Ford Motor Company (NYSE: F)


Ford engineThe (F) - Share could outperform in 2019 as investor sentiment on the stock market improves. Ford Motor Motors' shares are grotesquely undervalued on the basis of earnings forecasts, and a normalization of trade relations between the United States and China is likely to occur in 2019. An investment in Ford Motor currently stands at 7.2 percent and offers significant upside potential.

market environment

Ford Motor's shares were not high on the investors' shopping list in 2018: Ford Motor was (and still is) at the forefront of the United States-China trade war, and Ford Motor has higher tariffs General Motors (GM) to lower its earnings forecasts in the last year. The gap between the two largest economies in the world and the lower earnings forecasts have weighed heavily on the automotive sector. As automotive investors' risk appetite worsened, Ford Motor's share price dropped to a new year low of $ 7.41 in December.

However, the shares of Ford Motor have recovered from their recent lows thanks to improved investor sentiment.


Source: Stock charts

Ford Motor left the S & P 500 stock index far behind in 2018:

Source: CNBC

Profit Guidance

Ford Motor has also recently informed investors about the fourth quarter of the quarter, but the company has not yet released full results for the fourth quarter of 2014. According to Ford Motor's press release, the company expects the following results next week (release date is scheduled for January 23, 2019):

For full-year 2018, the company announces preliminary EPS results of $ 0.92 and adjusted EPS of $ 1.30, according to the company's most recent projections. The company ended the year with a strong cash position of $ 23.1 billion and liquidity of $ 34.2 billion.

The management of Ford Motor had previously provided a profit forecast of $ 1.30 to $ 1.50 per share, which would mean that the profit for Q4-2018 would be at the lower end of the previous target range.

Ford's preliminary earnings release came after General Motors made a bullish outlook on its business, which I discussed in my article titled "General Motors: This Is a Game Changer." General Motors shares fell after the car company raised its earnings and free cash flow forecast for 2019. Ford Motor did not announce its earnings forecast for fiscal year 2019, but is expected to do so on January 23, 2019.

However, Ford Motor had announced a solid dividend of $ 0.15 / share for the first quarter. The dividend for the first quarter of 2014 will be paid on 1 March to shareholders registered at the close of business on 31 January.

Surprise and attractive total return potential

Automakers such as Ford Motor are in a good position to outperform low profit expectations and the broader stock market in 2019 under two conditions:


  1. The United States and China resolve their trade dispute and draft a trade agreement (recent news suggests that China is ready to work to eliminate the US trade deficit); and
  2. The US economy is not slipping into recession.

If these conditions are met, Ford Motor could regain much of the area it lost in 2018, and the shares could fall back into the $ 11 to $ 12 range. With stocks currently trading at $ 8.36, there is an upside potential of ~ 32-44 percent. Today Ford Motor is still undervalued in my opinion. The estimated gain for the 5.3-fold next year will be even more favorable than that of General Motors.

diagramF PE (Forward 1y) data from YCharts

Risk factors that investors must consider

Obviously, a cyclical downturn (implying a decline in US vehicle sales and lower consumer spending) and a continuing trade confrontation with China without trade agreements are the main risk factors that could call into question the investment theme. However, investors could also earn high risk-adjusted returns if the US and China come to a trade agreement and the US economy does not get out of hand in 2019.

Your snack

General Motors' outlook for 2019 has been very positive, and Ford Motor is expected to forecast earnings next week when reporting on the results. A sell-off that we think is moving slowly will probably be a big positive catalyst for the Ford Motor stock. The low price investors now pay for Ford Motor shares implies a favorable risk-to-risk ratio and increases the opportunities for investors to generate high risk-adjusted returns in the future should the US-China trade conflict be resolved.


disclosure: I am / we are long F, GM. I wrote this article myself and expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose warehouse is mentioned in this article.


No comments:

Post a Comment