Ford Hits A Homerun (NYSE:F)

Vera Tikhonova

Ford knocks the ball out of the park

Ford Motor Company (NYSE:F) just released an SEC 8K detailing outstanding sales figures related to electric vehicle (“EV”) and truck sales. You can read the current SEC *K filing here. The Searching Alpha News team actually did a great job of highlighting the important points in a recent post as well:

Ford Motor Company ( F ) highlighted gains in electric vehicle market share and strong truck sales in a sales update Thursday.

According to a company data release Thursday, the Michigan-based automaker sold 179,279 vehicles in December, up from 173,740 in December 2021. However, that figure brought full-year sales to 1.86 million, down from 1.91 million sold. in the previous year.

That said, the automaker was able to maintain strong truck sales and accelerate EV gains. Truck sales in December rose 10.9% from a year earlier to 101,649 and rose to 653,957 sold for the full year. Sales of the F-Series trucks were quoted as outpacing the next closest competitor in the GM ( GM ) Chevrolet Silverado by more than 140,000 units.

For electric vehicles, sales doubled over the year to 61,575 vehicles. Ford is now second only to Tesla ( TSLA ) in terms of electric vehicle sales in the US.

Much was achieved in 2022, with Ford increasing its industry share by 0.7 percentage points. Delivering on our strategy, the share expansion came from broad-based growth from our SUV lineup and our all-new electric cars growing at twice the pace of the overall EV segment,” he said. “With a strong order book at retail, Ford is well positioned going into 2023.”

So Ford is gaining market share in the EV space and truck sales are up with the Ford F150 being the #1 selling truck for 2022 as well. However, sales are actually down slightly year over year. The company stated that they doubled their EV market share as well, which is very admirable. So sales are looking great right now. Plus, the stock has recently received a lot of support.

Ford shares are showing signs of a trend reversal

In my last update, I stated that I would need to see a trend change before reinvesting in the name. I currently have Ford on my watch list.

Finviz

Looking at the current chart, the first indications of a trend reversal seem to have begun. Although, I’ll need to see the stock break through major resistance at the 50-day SMA before I get excited. It looks good technically, but we’re not there yet. Ford stock is still down heavily and underperforming the market significantly.

Finviz

Ford is down 50% on the year

The stock is down 50% on the year. So some long-term Ford holders may be deep under water. If I were, I wouldn’t be selling at this time. I’m not buying yet… but I wouldn’t sell at this point if I were long, more on that later. Ford is actually starting to perform much better during the second half of 2022.

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Ford is up 10% over the past 6 months

Ford shares are up 10% over the past 6 months. This is quite admirable based on the volatile markets we have been exposed to recently. That’s because they are showing signs of turning the company around. I love Ford CEO Jim Farley and believe he will make it happen at some point, it just might take a little longer. Seeking Alpha has a BUY rating on the stock based on quantitative metrics as well.

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Ford scores an A – BLE – quantity rating

Alpha’s Quantitative Metrics tool search is awesome. I don’t always agree with what comes out due to the fact that I am somewhat of a contrarian investor and often look to buy stocks when they are in trouble, which more often than not leads to a quantitative SELL rating. Still, the Ford scores an A. Let’s take a look at why.

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Ford’s EBITDA growth is the main factor

EBITDA stands for “earnings before interest, taxes, depreciation and amortization.” It is a key metric when evaluating a company’s financial health and ability to generate free cash flow.

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Ford is crushing it in terms of EBITDA growth, but not doing so well in terms of revenue growth. That’s because Farley and company are in the process of pruning the company’s weaker, less profitable vehicles. So revenues are falling, but profits are up. This is a good thing. However, this shows that the company is still in the middle of a turnaround. They have not yet reached the other side of the rainbow, so to speak. Another positive for the company is the valuation at the bottom.

Ford is extremely underrated

Ford is very undervalued on a historical and comparative basis.

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Ford stock is trading at a 53.49% discount to its peers on a forward basis and a 23% discount to its 5-year historical average valuation. The stock is currently trading at a forward P/E ratio of 6.05 versus a five-year average of 8.30. So we can check the growth and evaluation boxes. Further, the technical situation is also improving. Now, let’s turn our attention to the most important piece of the puzzle, the dividend.

Ford’s dividend status

Ford currently pays a dividend with a yield of 4.16%. A few years ago, I would have jumped at the chance to lock in a 4% yield. Today, however, you can get a 4% risk-free yield by buying a CD. So I would have to believe that the dividend is well covered, the stock has significant upside potential, and is in an uptrend. Additionally, Research Alpha’s quantitative dividend scores aren’t all that compelling either. Let’s dive in and see what the issues are.

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Ford Dividend Notes

Ford’s dividend fails in the three most important metrics; security, growth and sustainability. However, it scores an A in performance. Let’s dig deeper.

Dividend security F

In the dividend summary, it was showing the payout ratio as just 27%. It would give you a warm fuzzy feeling, like there was a lot of money to go around. However, this was on a GAAP basis. When analyzing Ford’s dividend payout on a cash flow basis, it comes in at 68.74%, which is high with so much uncertainty ahead. Plus they score an F for durability.

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Ford’s dividend consistency scores an F

With the company having just suspended its dividend, it’s easy to see why they get a poor sustainability score.

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This, combined with several other factors, has led Seeking Alpha’s quant team to issue a dividend cut warning.

Alpha research warns of possible dividend cut

Below is the warning issued by Seeking Alpha. You can view the current page here.

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Alpha Research lists seven key factors as to why Ford may need to cut its dividend.

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However, I do not foresee the company cutting the dividend. I believe it would be a killer for Ford stock, and management knows it. I think they would take on additional debt to pay the dividend if they had to at this point. So what’s stopping me from jumping into stocks now? Let me close with my explanation

Investor Takeaway

Ford is definitely making good progress and seems to be turning the ship around. However, I should see the stock break out above strong resistance at the upper level of the current downtrend channel. Additionally, the current “recession-indicating” 3-month to 10-year yield curve has inverted at 0.90.

CNBC

This is the largest spread in 22 years. I see little chance that we will be able to get through the first half of 2023 without some semblance of a recession. This will cause people to hold back on new vehicle purchases and other big expenses while they lose out financially. I’m still in a wait mode in terms of starting a new position in Ford stock. We could see further weakness if the recession materializes.

Plus, it’s been a seller’s market over the past year in terms of vehicles. Low supply and high demand have given car dealers pricing power. However, I see that will change. I have already noticed that there are new car and truck ads offering discounts once again. That, along with a looming recession, has me in wait-and-see mode for now. These are my thoughts on the matter. I look forward to hearing yours. Is Ford a BUY right here?