Ford Maverick Truck portends additional momentum for stocks (NYSE:F)
In 2018, Ford Motor Co. (F) released the startling announcement that the automaker was get out of the passenger car sector – excluding Mustang – and limited to trucks and SUVs. More than a few Ford critics have questioned whether the company has temporarily lost its mind, noting that cars like the Toyota Corolla and Honda Civic are selling very well.
Four years later, Ford is demonstrating precisely what was up its sleeve. Maverick, a compact pickup that starts at just under $20,000, debuts as a new entry in Ford’s product line, using a nameplate that was carried by an undistinguished Ford Econocar from the 1960s. 1970. Initial sales are strong, as are the Bronco Sport and Ford Bronco models launched last year and the midsize Ranger in 2019. A newly designed Ranger is expected later this year.
Compact truck set
Smaller than the mid-size Ranger, Maverick aims to become an affordable means of transport – like its predecessor – and perhaps something more than just a means of transportation, aimed at a generation of young buyers who once flocked to models like Ford’s Focus, which was removed in 2018.
On Monday, Ford announced it was suspending orders for Mavericks due to overwhelming demand it was unable to meet. Ford will resume orders this summer, the company said, once the 2023 model is ready for production.
Trucks and SUVs are all the rage these days, sedans and coupes less so. What makes Maverick particularly efficient, from a commercial point of view, is that Ford did not have to develop a separate dedicated mechanical architecture for the vehicle. Like the Ford Escape compact SUV and the Bronco Sport, Maverick comes from a versatile architecture that saves the automaker tons of capital. In truth, this is the operating standard in today’s industry: many models that seem unrelated to consumers on the same basis.
Economically executing this product development strategy means remaining viable in a fiercely competitive, capital-intensive industry that has forced countless automakers to merge (Fiat), shut down (Studebaker) or seek the nearest treasury for a bailout (General Motors, I’m looking at you).
Dodge the bullets
Ford has had a few brushes with oblivion in its 119-year history. The global pandemic sent the company’s stock price crashing to an 11-year low at the start of 2020. Optimists were rewarded as Ford shares rebounded by a factor of six, hitting a price which had not been touched since 2002.
Ford’s support among investors over the past three years has been based on a number of factors. One is the popularity of new CEO Jim Farley, 59, a talented and tough boss with leadership chops developed in part during his earlier career at Toyota. Another is Ford’s planned migration to battery electric vehicles (BEVs), backed by a projected investment of over $30 billion through 2025 and capped by the recent introduction of the Mustang Mach-E battery.
An unexpected financial windfall was Ford’s $500 million investment in Rivian (RIVN) in 2019, which is now worth $6.84 billion at the startup’s current share price.
On Tuesday, Ford said it would record an $8.2 billion gain as a special item. The automaker is also reclassifying a prior non-cash gain on the stock this year as a special item. Special items are included in Ford’s GAAP net income and earnings per share, but excluded from non-GAAP adjusted earnings and earnings per share before interest and taxes.
Will the earnings disappoint you?
This and several other non-operating charges and gains will affect Ford’s earlier guidance that adjusted earnings before interest and taxes for the full year will be between $10.5 billion and $11.5 billion, which likely means that earnings for the full year may fall below earlier forecasts. when Ford announces fourth quarter and full year 2022 financial results on February 3 after the close of trading.
The company has clearly made heavy financial commitments to electrification, signaling to investors that it is confident consumers will respond. In October, Ford reinstated its quarterly cash dividend to 10 cents per share, below the 15 cents paid by Ford through early 2020.
As others have pointed out, Ford’s stock price has rallied remarkably over the past year – 124% in the last six months alone, according to Seeking Alpha’s value pendulum – backed by multiple “buy” recommendations; but now Ford’s share price reflects a much higher P/E (share price to earnings ratio) than its industry peers.
Based on earnings, Ford’s P/E is close to 29, while GM, Volkswagen, Toyota and others are in the single digits, suggesting Ford shares are expensive at current prices. Gap narrowing, analysts predict Ford’s expected growth future earnings.
Of course, Ford’s future earnings will depend on a number of factors, including how quickly consumers respond to Ford’s BEVs, which include the Mustang Mach-E, e-Transit utility vehicles and F-150 pickup truck. Lightning later this year. Ford has expressed great confidence that its BEV models will find a receptive market.
The stock market, aside from a recent pullback, has been – I would say overly enthusiastic – about EV-related startups, coming up with names like Lucid (LCID), Rivian (- which have very few sales – perhaps hoping- being that they will will be the next Tesla, Inc. (TSLA), which is now selling at a rate of one million vehicles a year. Ford, GM and other incumbents are also betting big on electrification.
Between the two
Investors who are bullish on electrification and believe it will become mainstream automotive technology in the next five to seven years are also bidding on incumbents including F, GM and Volkswagen AG (OTCPK:VWAGY). If the transition takes longer, at least incumbents will be able to sell their gas-powered models. In case their bottom line suffers from overspending too soon.
Ford is kind of stuck between those two worlds: gas-powered trucks like the F-150, Ranger and Maverick and the new BEV models that will debut soon.
Given the market pullback of the past two weeks, I would hold onto Ford shares at their current price and resist the temptation to buy the dip. Once the magnitude of the BEV trend becomes clearer, Ford stocks could be a good bet to shoot higher. But that moment of decision has not yet arrived.