F Stock Study (6-13-24)

Posted by Mark on July 25, 2024 at 07:00 | Last modified: June 13, 2024 15:52

I recently did a stock study on Ford Motor Co. (F) with a closing price of $12.08.

M* writes:

     > Ford Motor Co. manufactures automobiles under its Ford and Lincoln
     > brands. In March 2022, the company announced that it will run its
     > combustion engine business, Ford Blue, and its… [Battery Electric
     > Vehicle] business, Ford Model e, as separate businesses but still
     > all under Ford Motor. The company has nearly 13% market share in
     > the United States, about 11% share in the U.K., and under 2% share
     > in China including unconsolidated affiliates. Sales in the U.S.
     > made up about 66% of 2023 total company revenue. Ford has about
     > 177,000 employees… and is based in Dearborn, Michigan.

As the son of a lifelong Ford engineer, I’ve always kept one eye on the stock but never anticipated doing a deep dive. Dad recently asked what I thought about the stock. What better way to answer than to get fully informed by doing a First Cut?

Over the last 10 years, this mega-size ( > $50B annual revenue) company has grown sales 0.6% per year and seen EPS contract at a 34.7% annual rate.

Did you just hear a loud BOOM go off?

Lines are not discernably up, not straight, and not parallel. YOY Sales dip in ’19 and ’20. If it weren’t for EPS declines in ’16, ’18, ’19, ’20, and ’22, then earnings grow 5.6% per year. CFRA normalized earnings are a bit smoother with ’22 posting growth but Value Line, which excludes non-recurrent gains/losses, does show that YOY contraction in the same five years.

Despite failing visual inspection, I will continue with the study.

Over the last decade, PTPM trails peer and industry (curves overlap) averages while generally declining (despite a spike to 13.0% in ’21) from 3.0% (’14) to 2.3% (’23) with a last-5-year mean of 2.4%. ROE is about even with peer/industry (same curve) averages while generally declining (despite a spike to 50.1% in ’21) from 12.3% (’14) to 9.8% (’23) with a last-5-year mean of 10.3%. Debt-to-Capital is higher than the peer/industry average while generally falling from 82.8% (’14) to 77.9% (’23) with a last-5-year mean of 79.1%.

Quick Ratio is 0.95 and Interest Coverage is 3.6. M* rates the company “Standard” for Capital Allocation while Value Line gives a B+ rating for Financial Strength.

With regard to sales growth:

• YF projects YOY growth of 3.7% and 0.9% for ’24 and ’25, respectively (based on 12 analysts).
• Zacks projects YOY 2.7% growth and 0.2% contraction for ’24 and ’25, respectively (6 analysts).
• Value Line projects 1.6% annualized growth from ’23-’28.
• CFRA projects growth of 0.7% YOY and 0.3% per year for ’24 and ’23-’25, respectively.
• M* offers a 2-year ACE of 1.0% contraction per year.

I am forecasting flat sales growth (middle of the range).

With regard to EPS growth:

• MarketWatch projects 1.9% and 2.8% growth per year for ’23-’25 and ’23-’26, respectively (based on 28 analysts).
• Nasdaq.com projects 0.5% YOY contraction and 3.7% growth/year for ’25 and ’24-’26 (8/8/4 analysts for ’24/’25/’26).
• Seeking Alpha projects 4-year annualized growth of 0.7%.
• YF projects YOY contraction of 0.5% and 3.0% for ’24 and ’25 (20) along with 5-year annualized contraction of 2.7%.
• Zacks projects YOY contraction of 0.1% and 0.5% for ’25 and ’26 (8) along with 5-year annualized growth of 7.7%.
• Value Line projects 16.8% (8.4%) annualized growth from ’23-’28 (’24-’28).
• CFRA projects contraction of 8.0% YOY and 4.1% per year for ’24 and ’23-’25 along with a 3-year CAGR of -1.0%.
• M* projects long-term growth of 9.2% per year.

My 1.0% annualized forecast is toward the bottom of the long-term-estimate range (mean of five: 6.3%). Initial value is ’23 EPS of $1.08/share rather than 2024 Q1 $0.97 (annualized).

Inconsistent earnings can drastically impact estimates. Moving the initial value from ’23 to ’24 cuts Value Line’s long-term growth rate in half and cuts the mean of five estimates to 4.7%. My forecast is somewhere in the middle with three estimates higher and two lower.

My Forecast High P/E is 10.8. Over the past decade, high P/E ranges from 4.8 in ’21 to 22.6 in ’14 (excluding ’19, ’20, and ’22) with a last-5-year mean of 9.6 and a last-5-year-mean average P/E of 7.5. I am forecasting at the 10-year median.

My Forecast Low P/E is 6.9. Over the past decade, low P/E ranges from 1.9 in ’21 to 16.6 in ’14 with a last-5-year mean of 5.4. I am forecasting at the 10-year median.

My Low Stock Price Forecast (LSPF) is $8.50/share. The default based on initial value given above seems unreasonably low at 44.5% less than the previous close. My forecast is 29.6% less than the previous close and 11.5% less than the 52-week low.

Over the past decade, Payout Ratio (PR) ranges from 31.6% in ’17 to 54.2% in ’18 [excluding ’19, ’20, ’21 (2.2%) and ’22]. I am forecasting below the range at 31.0%. Although dividend is suspended from Mar ’20 through Dec ’21, I believe COVID-19 to be a Black Swan event.

These inputs land F in the Sell zone with a U/D ratio of 0.1. Total Annualized Return (TAR) is 3.3%.

PAR (using Forecast Average—not High—P/E) of 0.0% is unacceptable for any size company. If a healthy margin of safety (MOS) anchors this study, then I can proceed based on TAR instead but even that is less than the risk-free rate.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on only 38 studies done in the past 90 days (my study and 10 outliers excluded), averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 2.4%, 9.3%, 11.1, 5.4, and 1390%, respectively. I am lower except for the fourth (6.9). Value Line projects a future average annual P/E of 9.0 that is greater than MS (8.3) and greater than mine (8.9).

MS high / low EPS are $1.68 / $0.97 versus my $1.14 / $0.97 (per share). My high EPS is less due to a lower growth rate. Value Line’s high EPS of $2.35 is much greater than both.

MS LSPF of $8.70 implies a Forecast Low P/E of 9.0 versus the above-stated 5.4. MS LSPF is 66.1% greater than the default $0.97/share * 5.4 = $5.24, which results in more aggressive zoning. MS LSPF is also 2.4% greater than mine.

27 of the 38 studies have PR 1537% or higher, which contributes to the 1390% mentioned above. This also results in MS TAR of 140%: quite unreasonable. I’m not sure what causes this, but if I have to exclude for fear of other inputs also being corrupt then only 11 studies remain. Those average (lower of mean/median) inputs are: 2.4%, 9.3% [these two same as above], 12.0, 6.4, and 21.9%. High/low EPS are $1.56 / $0.97 and LSPF is $7.70. TAR is still more than quadruple mine at 13.7%.

Compared to the full or filtered MS set, MOS seems robust despite targeting range midpoints as opposed to the conservative below-the-range approach I typically employ.

With regard to valuation, PEG is 0.79 and 11.2 per Zacks and my projected P/E: as widely discrepant as the respective EPS growth estimates. Relative Value [(current P/E) / 5-year-mean average P/E] is extremely high at 1.67 but with a couple NMFs flanked by outlier high/low P/Es, that 5-year average is only calculated with one or two.

With regard to data stability, from ’19-’22 F posts two GAAP EPS losses, one penny, and a record-high result (by more than two-fold) at $4.45. I like normalized EPS to smooth but even that does not avoid inconsistent historical growth rates. Starting with 2014-23 and incrementing the starting year by one, the annualized EPS historical growth rate is: 6.3%, 0.5%, 1.9%, 2.0%, 9.1%, 14.0%, 70.0%, and 12.4%. It’s no wonder future long-term projections are also widespread (range 19.5%).

Such EPS inconsistency is what [makes for a much longer stock study and] troubles me about Ford Motor Company as a potential stock investment. One metric that best sums this up is probably R^2: 0.41 and 0.00 over 5 and 10 years, respectively. Value Line gives an Earnings Predictability score of 10.

U/D has F a Buy under $9.50/share while the BI TAR criterion will be satisfied ~$6.15 given a forecast high price of $12.30.