On September 25, 2023, Ford Motor Co's stock (F, Financial) experienced a daily gain of 1.69%, despite a 3-month loss of -9.26%. With an Earnings Per Share (EPS) (EPS) of 1.02, the question arises: Is the stock modestly undervalued? This article aims to provide a detailed valuation analysis of Ford Motor Co (F), shedding light on its intrinsic value and future prospects.
Introduction to Ford Motor Co
Ford Motor Co, a renowned automobile manufacturer, operates under its Ford and Lincoln brands. As of March 2022, the company runs its combustion engine business, Ford Blue, and its BEV business, Ford Model e, as separate entities under the Ford Motor umbrella. The company's market share stands at about 13% in the United States, approximately 6.5% in Europe, and roughly 2.1% in China, including unconsolidated affiliates. With about 173,000 employees, including approximately 57,000 UAW employees, Ford Motor Co is based in Dearborn, Michigan.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It is calculated based on three significant factors: historical multiples at which the stock has traded, an adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the stock's fair value. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $12.64 per share, Ford Motor Co (F, Financial) has a market cap of $50.60 billion. Based on the GF Value estimation of $16.29, the stock appears to be modestly undervalued. This valuation suggests that the long-term return of Ford Motor Co's stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Ford Motor Co has a cash-to-debt ratio of 0.3, ranking worse than 66.99% of 1230 companies in the Vehicles & Parts industry. Based on this, GuruFocus ranks Ford Motor Co's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Ford Motor Co has been profitable 8 out of the past 10 years. Over the past twelve months, the company had a revenue of $169.80 billion and Earnings Per Share (EPS) of $1.02. Its operating margin is 7.47%, which ranks better than 66.96% of 1265 companies in the Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Ford Motor Co at 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is its growth. The average annual revenue growth of Ford Motor Co is 0.4%, ranking worse than 69.15% of 1206 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth is -15.1%, which ranks worse than 84.71% of 1079 companies in the Vehicles & Parts industry.
ROIC vs WACC
Comparing a company's return on invested capital to the weighted average cost of capital can determine its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ford Motor Co's return on invested capital is 5.41, and its cost of capital is 7.37.
Conclusion
Overall, Ford Motor Co (F, Financial)'s stock shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is also fair. However, its growth ranks worse than 84.71% of 1079 companies in the Vehicles & Parts industry. To learn more about Ford Motor Co stock, you can check out its 30-Year Financials here.
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