Morningstar

Ford’s Lukewarm Results Could Continue in 2020

We don’t think Ford’s intrinsic value is well below $10 per share as the stock often trades, but we do think the stock will stay in that area for at least all of 2020.

Securities In This Article
Ford Motor Co
(F)

Ford’s F fourth quarter results missed the Refinitiv adjusted diluted EPS consensus of $0.15 with actual results of $0.12, down 60% year over year. Also disappointing was 2020 adjusted EPS guidance of $0.94-$1.20, below our model’s $1.31 and Refinitiv’s $1.26, sending the stock down over 9% after the Feb. 4 close. We do not change our fair value estimate, but will reassess all modeling assumptions this month after the 10-K is filed. We don’t think Ford’s intrinsic value is well below $10 per share as the stock often trades, but we do think the stock will stay in that area for at least all of 2020. The 2020 guidance plus management’s refusal to break out detail of variances, such as North America’s unfavorable $500 million cost variance versus fourth quarter 2018, makes it hard for us to see why investors should get excited about owning Ford stock now. We continue to think the generous dividend, yielding about 7%, is safe due to Ford’s $35.4 billion of automotive liquidity, but we don’t see much capital gain potential this year.

We were hopeful that the new light truck product launched in 2019 and the 2020 launches of the new F-150 and Bronco would mean meaningful adjusted free cash flow growth from 2019’s $2.8 billion, but instead 2020 guidance is for $2.4 billion-$3.4 billion. On the positive side, 2020 capital expenditure is guided to $300 million-$800 million below 2019’s $7.6 billion, as Ford reduces its car model offerings to focus on light trucks. All guidance doesn't include any possible impact from the coronavirus as the situation is still too new to ascertain damage, but Ford does not manufacture in Wuhan.

Bright spots include the China segment improving its quarterly loss by 61% to $207 million on cost improvements and improved JV results; Europe made a $21 million profit versus a $199 million loss in the prior year’s quarter thanks to improved mix and restructuring benefits; and Ford Credit’s $3 billion annual pretax profit was its best in nine years.

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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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