Morningstar

Ford’s Q3 Earnings Has Good and Bad News, but Is More Positive Than Negative

Company is resuming limited share buybacks; stock’s fair value estimate unchanged.

Ford Stock at a Glance

  • Current Morningstar Fair Value Estimate: $24
  • Ford Stock Star Rating: 5 Stars
  • Economic Moat Rating: None
  • Moat Trend Rating: Negative

Ford Earnings Update

We see no reason to change our Ford (F) fair value estimate after incorporating the firm’s third-quarter results into our model. Adjusted EPS of $0.30 beat the Refinitiv consensus of $0.27. Ford announced on Sept. 19 that part shortages left about 40,000 partially built vehicles in the quarter, and that it expected total company third-quarter adjusted EBIT of between $1.4 billion and $1.7 billion. It also confirmed full-year guidance for EBIT at $11.5 billion to $12.5 billion. The actual third-quarter number came in at $1.8 billion, and a $2.2 billion working capital benefit for the quarter brought automotive adjusted free cash flow to $6.6 billion year to date. Ford had been guiding for full-year free cash flow as high as $6.5 billion, so it has increased free cash guidance to $9.5 billion to $10.0 billion on anticipated strong auto results and continued strong pricing from scarce inventory. It also expects to wholesale all 40,000 unbuilt vehicles in the fourth quarter. However, a full-year commodity and inflation headwind for items such as logistics and other raw materials is now expected at $9 billion, up from $7 billion last quarter. Management is guiding for full-year adjusted EBIT of about $11.5 billion.

We think Ford had a good quarter given the market’s low expectations following the Sept. 19 preliminary results news. We are also glad to see Ford is resuming limited share buybacks to offset dilution from stock-based compensation, as was its custom prior to the pandemic. We’d welcome further buybacks given our belief the stock is undervalued and Ford has automotive cash and liquidity of $49.2 billion, including $32 billion of cash and securities.

Ford also announced it has sold its 49% stake in its Russian joint venture (terms not disclosed), but retains the option to buy it back within five years if political conditions improve. It also announced it is closing its Argo AI autonomous vehicle firm run with Volkswagen to focus on less advanced AV technology.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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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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