Ford stock has shown a 15% increase year-to-date, while rival GM has gained nearly 30% over the same period. The bulk of Ford’s gains have occurred in the last month, with a 20% rise in stock price in recent weeks. Despite potentially mixed earnings for Q2 2024 as sales slow amidst easing consumer spending, investors are optimistic about Ford due to strong truck sales, potentially reduced spending on electric vehicle manufacturing, and the potential for higher capital returns. The stock has lagged behind strong financial performance in recent years, making it an appealing risk-to-reward opportunity.
Ford’s volumes for Q2 increased by 1% year-over-year, driven by a 5% growth in truck sales, particularly the F-Series trucks which saw a 30% increase sequentially. The F-150 remains a top-selling and lucrative product line for Ford, with a diverse powertrain lineup that includes gasoline, hybrid, and electric options. Slower growth in the EV market could give Ford more time to focus on its gas-based vehicles while still positioning itself well in the various truck segments. Hybrid sales also saw a significant increase, boding well for profitability in the short term.
The slow pace of Ford’s EV transition has been a challenge for the stock, but the cooling demand for EVs, evidenced by slowing growth at Tesla, could allow Ford to focus on monetizing its gas vehicles while moderating its EV developments. Although the Model E division, which sells electric vehicles, is currently unprofitable, the market for hybrid vehicles is expanding, with Ford seeing a 56% increase in hybrid sales year-over-year. This shift could positively impact shareholder sentiment as the company continues to focus on profitability.
Ford’s strong cash flows have allowed for robust capital return programs, including dividends and special dividends. With free cash flow generation reaching approximately $6.8 billion in 2023, Ford has raised its adjusted free cash flow guidance and plans to distribute 40% to 50% of its annual free cash flow to shareholders. Unlike GM, which has focused on stock repurchases, Ford is likely to continue prioritizing dividends, potentially issuing additional special dividends in the future. The company’s financial strength and cash flow outlook could further support its stock price.
While Ford stock has seen strong gains over the past few years, with a 65% increase since early 2021, its performance has been volatile, underperforming the S&P 500 in 2022 and 2023. As uncertainty looms in the macroeconomic environment, Ford’s performance in the next 12 months remains uncertain. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500, providing better returns with less risk. Whether Ford can achieve similar success remains to be seen based on market conditions and company performance in the coming months.
Despite concerns in the automotive market, such as declining car prices and weakening consumer confidence, Ford’s valuation remains attractive. Trading at 7x 2024 consensus earnings, the stock is valued at around $15 per share, 7% above the current market price. With Q2 earnings on the horizon, investors are eagerly awaiting more insights into Ford’s performance and outlook. For a deeper analysis of Ford’s business model and revenue trends, investors can refer to Trefis’ dashboard on Ford Revenue.
