Morningstar

Cost Headwinds Will Limit Ford in 2018

Although the automaker's stock is undervalued, we don't expect it to move significantly upward this year.

Securities In This Article
Ford Motor Co
(F)

We are not changing our fair value estimate for

We think the market is eagerly awaiting more specifics on how the company will achieve better fitness, but we also think that many cost reduction plans, such as reducing the number of vehicle combinations, will take at least another year to be more evident in results. At the same time management works through a multiyear restructuring, it is facing what we expect will be a declining U.S. auto industry this year, commodity and currency headwinds totaling $1.6 billion, and continued pricing headwinds in China. China may improve in the second half of the year once Ford gets new product into the market, but pricing headwinds remain for now. Chinese equity income for the full year declined year over year by 36% to $916 million and by 46% in the fourth quarter.

It’s hard for us to get excited about 2018 for these reasons even though we do think the cost reductions will ultimately be the right action. In the meantime, the stock pays a robust dividend yield, including a $0.13 per share special dividend payable March 1, of over 6% based on Jan. 24’s closing price. We feel this dividend is safe even in a downturn and we think in the long term, Ford shareholders will be rewarded by buying now just not in 2018 beyond the dividend.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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