How Ford Stock Can Drive To $13

| About: Ford Motor (F)

Summary

Ford Made a significant move this past week by kicking CEO Mark Fields to the curb.

With some patience, Ford can reach $13 in the next 12 to 18 months, delivering some 20% returns.

Ford stock — priced in the rear view mirror — deserves multiple expansion of two points added to 2018 estimates of $1.66.

Ford Motor Company (NYSE:F) made a significant move this past week by kicking CEO Mark Fields to the curb and it seems the market couldn't care less. But with some patience, these shares can reach $13 in the next 12 to 18 months, delivering some 20% returns. Combined with Ford's 5.5% annual dividend yield, good luck finding a better low-hanging fruit on the market.

Obviously, the fact that Ford stock, which has fallen 10% year to date and 20% in twelve months, has pushed the yield much higher. Likewise, the fact that the shares barely budged despite the strong statement the Detroit-based automaker has made about where it thinks it future is heading, suggest the market is not buying Ford's new focus. (pun intended)

Clearly, Mark Fields wasn't the right guy to lead Ford into the highly competitive realm of electric and autonomous-driving vehicles, which many regard as the industry's future. Markets leaders Tesla (NASDAQ:TSLA), Alphabet (NASDAQ:GOOGL) (NASDAQ:GOOG) and - if you believe the rumors - Apple (NASDAQ:AAPL) already established the inside track in this area. Not to mention, the advancements General Motors (NYSE:GM) with cars such as the Chevy Bolt, which has sold 7,370 cars through April 2017, while the Tesla Model S has sold 7,225 cars, paints Ford as even farther behind its main Detroit rival.

Mark Field's inability to convince the Street that Ford can pivot into a tech company was the main cause of the Ford's lagging stock price, despite the fact that Fields achieve record revenue and vehicle sales during his tenure. I say this knowing full well that Ford's net income has fallen by nearly 67% over the past three years.

All told, Ford had to make this change. The question though, is new CEO Jim Hackett the right person to steer Ford where it wants to be? We might not know the answer to that question for some time. My guess is, it will take at least 24 months before Hackett can demonstrate Ford's capabilities in cutting edge technologies and design.

The good news is, the market - as evidenced by the big yawn of Hackett's arrival - doesn't believe he can turn things around. In a research note from released this week from Morgan Stanley's Adam Jonas, the analyst had this to say:

"In our opinion, Ford's current and forward year warnings guidance should not be relied upon-we believe the earnings situation may need to get materially worse before it gets better ... We believe the company must absorb substantial up-front cash and non-cash expenditure for the purpose of long-term strategic reposition that may weigh substantially on near term results."

Morgan Stanley is not alone. Consensus estimates of $1.55 per share this year and $1.66 per share next year suggests that Ford will continue to struggle in the future, achieving only minimal EPS growth. And I believe the low expectations will work in Hackett's favor.

There's no denying that Hackett has his work cut out for him. But Hackett's tech expertise and his ties to Silicon Valley can have a potentially boosting effect on Ford's ability to recruit and retain autonomous tech talent. What's more, Ford, which has spend more than $1 billion in investments on companies like Pivotal, Velodyne, and Argo AI as it looks to ramp up its autonomous driving efforts, has shown it is willing to put its cash to work.

To the extent that Hackett can use these deals to accelerate Ford's emergence into a mobility company, Ford stock - priced in the rear view mirror - deserves multiple expansion of two points added to 2018 estimates of $1.66, which puts Ford stock at $13 per share.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in F over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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