Interactive Investor

ii view: Ford stock rallies amid optimism about prospects in 2024

A major seller of commercial vans, slowing investment in electric vehicles and paying another special dividend. Buy, sell, or hold?

7th February 2024 11:25

Keith Bowman from interactive investor

Fourth-quarter results to 31 December

  • Revenue up 4% to $46 billion
  • Adjusted earnings down 43% to $0.29 per share
  • Quarterly dividend of 15 cents per share, unchanged from previous quarter
  • Special dividend of 18 cents per share

Guidance:

  • Expects full-year 2024 adjusted profits of $10-$12 billion, potentially up from 2023’s $10.4 billion

Chief executive Jim Farley said:

“We’re the only company that gives customers such a wide range of choices – gas, hybrid and electric vehicles – made possible by our Ford+ plan and the talented team that’s carrying it out. Ford is creating a product, software and services powerhouse with huge potential for this year and the long haul.”

ii round-up:

Auto maker Ford Motor Co (NYSE:F) detailed sales and earnings that beat Wall Street forecasts, driven by demand for hybrid vehicles such as its F150 pick-up truck and a focus on cost reductions. 

Fourth-quarter auto sales of $43.2 billion exceeded forecasts for nearer $40 billion, with adjusted profit for 2024 expected to come in at up to $12 billion which is ahead of analyst estimates for as much as $11 billion. Increased cashflows also enabled Ford to declare a special dividend of 18 cents a share on top of an ordinary 15 cents payout.

Shares in the S&P 500 company rose 6% in post results trading having come into this latest news up by 5% in 2023. That’s similar to General Motors Co (NYSE:GM), although a long way behind a doubling for electric vehicle (EV) maker Tesla Inc (NASDAQ:TSLA). The S&P 500 index itself climbed 24% over last year. 

Revenue for traditional petrol and hybrid vehicles rose 8% in 2023 to $102 billion, generating an adjusted profit of $7.5 billion, with management highlighting its position as the only brand in the top three in both hybrids and EVs in the USA. 

Sales for its Ford Pro or commercial vehicles such as Transit vans climbed by almost a fifth last year to $58 billion, delivering a doubling in adjusted profit to $7.2 billion. 

EV related revenues at its ‘e’ division improved 12% to $5.9 billion but with a resulting loss of $4.7 billion, given an extremely competitive pricing environment and ongoing strategic investments. Management continues to defer certain capital investments given slower customer adoption of EV vehicles than previously expected. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on Ford shares post the results, flagging its estimate of fair value at $15 per share and highlighting Ford as a ‘top pick.’
 
ii view:

Headquartered in Dearborn Michigan, Ford employs over 170,000 people globally. Its brands include both Ford itself and Lincoln vehicles. Most of its sales at around three-fifths still come from its home US market, with other important markets being Canada, the UK and Germany. 

For investors, losses and required investment at its electric vehicle business continue. Elevated interest rates may be hindering buyers using finance, a prior deal with its workers regarding wages has increased costs, while its operational execution has by management’s own admission previously fallen short of requirements.

On the upside, its market share in the key North American pick-up truck sector remains strong including the sale of petrol, hybrid, and EV versions. Management initiatives including a high focus on costs are ongoing, while investments and joint ventures with Chinese vehicle makers persist.

For now, and while losses at its EV business are not to be ignored, an historic ordinary dividend yield of close to 5% and the payment of special dividends likely  offer a firm basis for income investors at least to stay onboard.  

Positives

  • Action to restructure the business taken
  • Attractive dividend yield (not guaranteed)

Negatives

  • Previous operational challenges
  • Elevated costs

The average rating of stock market analysts:

Hold

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