Entering text into the input field will update the search result below

Ford: Trading Below Intrinsic Value, But Lots Of Uncertainties

May 06, 2021 9:51 PM ETFord Motor Company (F)GM, TM, HYMLF, VWAGY32 Comments
RockEstra Research profile picture
RockEstra Research


  • Ford has been underperforming other major car manufacturers by a wide margin on different metrics.
  • The company is undergoing a Strategic Redesign to make it more competitive again.
  • Even though Ford is trading below its current intrinsic value, I believe it is not a good investment opportunity just yet.

Logo van Ford bij een autodealer
Photo by gopixa/iStock Editorial via Getty Images

Investment Thesis

Ford (NYSE:F) is a company that produces and sells automobiles. In 2020, the company sold around 4,187,000 vehicles worldwide.

Ford has been underperforming other major car manufacturers in the past year. Only

This article was written by

RockEstra Research profile picture
An occasional investor trying to find value stocks. I started investing around 15 years ago, at that time I started I bought two stocks based on market hype. Over the course of many years I got more interested in investing and started reading books. Currently, I hold a portfolio of 20 stocks, focused on European and American stocks. I try to find stocks that in the coming years (5 to 10) have ample room for growth and the stocks must pay a dividend. Preferably with an increasing dividend policy.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (32)

Ford Motor Credit is the crown on the companies head. Ford is moving up today. will be interesting to see how high the run will go.
Just added to my position. Too many big buys to the upside today. Is it possible that the dividend will be restored soon?
One big problem is that your “intrinsic value” amounts to complete speculation. Anyone who actually thinks they can make a projection into perpetuity (forever) and discount that back to present value and have that number mean anything is kidding themselves. In your dcf about 80% of the value is in the terminal value which is all built on the guess that F grows at 2% annually after 2024 forever. A dcf is speculative when you are valuing KNOWN cash flows. When you are guessing at the cash flows a dcf is pointless.
Ford needs to buyback 1 billion shares to raise the stock price then put back a 12 cent dividend for now
Fitch boosted it’s rating on F
@gandy Please share the link. I couldn't find one.
@SD_Dude They affirmed their rating, not boosted. However, their outlook did improve. (Source: www.fitchratings.com/...
ronald61239 profile picture
I ffind it interesting, the author is using foreign Cos to compare with Ford. Can it be the strong dollar has something to do with the comparison ??
@ronald61239 interesting point it was kind of an odd choice
Ford's ability to generate more income from its invested capital has been in a downward trend since 2011, from an ROIC of more than 11% to a negative ROIC at the end of 2020. For 2020, Ford has been underperforming all other car manufacturers we used in this analysis. It is even losing money for every dollar it is investing.

Similar to the ROIC, net profit margin has been in a downward trend, coming from as high as 14+% in 2011 to hit a negative profit margin of -1% in 2020.

The question the bulls need to ask is how is this even possible in a roaring automotive market that is radically skewed toward its wheel house full size trucks and SUVs......

Additionally, Ford has upside resistance at $17.49 per share, due to
the conversion price on the $2B convertible note offering due in 2026.
Ford is in the process of doing exactly what it needs to do to address a healthy future. It is making a major pivot to EV from ICE. In order to (and should do) this they have invested 27 Billion towards EV which includes the development of its own battery manufacturing.
To me this article may have some facts, but it is totally ignoring Ford's action to change. So naturally financials (basically along with everything about the company) will stall as they make this pivot. However, and at a minimum with what Ford is doing they will remain competive and they have an excellent chance to go to $75 plus a share. It may/will take a few more years but so far they are right on track. This article is a static approach to how Ford is performing. Ford (a going concern) like any Company should be anayzed in a dynamic way. Its called investing...
Gary Schuster profile picture
@JP295 I agree with your comments. In addition to the pivot to EV's, Ford has changed their model offerings to focus on SUV's and trucks versus cars. I think the increased margins resulting from that change will soon begin to show on the bottom line. Furthermore Ford has a good autonomous driving program. They will be a leader in that area when this technology finally comes to the market. Ford does have a good strategic plan. They need to execute and, hopefully, have some good luck--i.e. no more pandemics and chip shortages.
@Gary Schuster : Yes, AI is another area (I negelected to mention) that should produce growth for Ford. Again it may/will take a couple of years but Ford looks good. Good luck with your investing.
Fangorn profile picture
Why do so many articles on Ford avoid analysis of Ford Motor Credit?
Isn't this still a big part of the company?
@Fangorn Very good point about Ford Credit!
Ford Credit the last time I looked at it, had a book value of roughly 14 BLN, which is bare minimum capital adequacy ratio for Financial institution. Considering Ford Credit is a money-making machine, at least in our favourable Macroenvironment, its value is probably around 1.2 Book. So I assume its value is roughly $17.
I wish Ford would spin-off this Unit, to clean up its Balance Sheet and remove the huge Debt overhang that comes with it and that skirts calculations of Enterprise Value, Solvency ratios and all the Rest.
Of course, its easier said than done and in reality, Automotive Business will have a negative value come Recession.
What is another huge problem that no one addresses is 2 class Share structure and control of Ford great-grandson. This is the biggest drawback of Ford, very expensive to the Company, Ford family.
Finally, constant changing of CEOs is another HUGE DRAWBACK.
Gary Schuster profile picture
@Fangorn To your point, Ford Motor Credit is not discussed as much as Ford. Typically, when it is discussed, it is usually characterized as a significant risk to Ford.

However, currently I think all of the usual warnings are outdated. The risks are largely the uncertain value of the financed cars. If a loan goes bad, and the repossessed car has depreciated more than the loan balance, then Ford Motor Credit sustains a loss. At this time used car prices are high. The normal credit risks are presumably much reduced. This should mean that Ford Motor Credit's profits, and valuation, are significantly higher. I would like to see an updated analysis of that company that takes these things into account.
It will survive. Tough industry. If the dividend comes back, it’s a $20 stock. Held since $2 and reinvested.
@mike.andrews They don't listen to me but I rather they pay their debt over dividend.
vooch profile picture

Ford Automotive has massive net cash position.
Beery1 profile picture
@mike.andrews Me, too. I bought in during the Great Recession between $1.68-2.26 a share, back when I was eating Ramen noodles to save money to throw at stocks. Geez, I thought, Ford has its financing in order and the stock is cheaper than a Big Mac! Sold enough a few years later when it topped $18 to cover the nut. Bought a few shares more recently when it was in the $7 range. I'm up 157% plus, on the bank's money, NOT including all those years of 5-7% dividend icing on the cake. I have taken much flack for holding F long from SA folks over the years, but I don't see anything in what I just wrote that is problematic. It has been a good solid holding. The company seems organically oriented to survival and even thriving, but on its own terms. They have been good enough for me. Now, things look more positive than they have in quite some time.
This is an excellent backward looking article. I have never seen a company growing based on the past. Where is the analysis for the future? They were on the way to earn $5/share this year till they were hit with chip issues. What PE ratio you will give Ford if they earned $3.5/share in 2021? Rock solid supporting evidence below.

Please read the articles below in that order:

pay attention between 2:30-2:45m
Ron Burgundy’s Hair profile picture
Long $Failure and noteworthy the company is in year 4 of the 200 Year Strategic Plan which might lead to sustained share price appreciation but its way too early to know for certain. Also, the dividend is safe because the Ford family depends on it - right? Oh wait...
@Ron Burgundy’s Hair I have to agree with Boomer on this one. I trimmed 90% of my F shares after earnings. I was very happy with the 1 year returns since buying in the $4 handle last year (both shares and calls). But this company is not a long term hold. They’ll never go bankrupt, but there are too many issues such as:

Structural: despite cutting factory output, including 50% in Q2, they continue paying the line workers per the UAW contract (although I’m sure it’s a reduced paycheck). That’s simply unacceptable and unsustainable. You can’t effectively manage a business that way. The capital should be flowing to the stockholders.

Management turnover: 3 CEOs now in the last ~7 years. And perhaps 4 within the last 12ish. It takes years to understand, identify, create, and implement enterprise-wide strategy. I think Hackett was a real change agent and they are seeing some benefits of what he did, but he barely had time to implement his plan (let alone keep grinding it down they way it’s needed). Also, 3 CFOs within the last ~4 years.

Management failure: Too many examples. Will begin with establishing a fail-safe dividend policy which would allow them to continue returning capital throughout the business cycle. That means when a recession hit, they could keep paying. Guess what—that went out quite rapidly when COVID hit. That was a gut punch to their long term shareholders, the ones who truly believed in management. They lost a lot of respect and I lost my ability to trust in them. That’s simply unacceptable. I could go on about failure to manage the chip shortage, commodity cost inflation, repeatedly bungling product launches, and on and on.

Bottom line: great products, terrible management, uninvestable, structural issues that will never go away. And this is from a guy who loves his F150.

Conclusion: wait for next big recession (they come every 8-10 years now), stock will drop to $5 or below, then buy. Sell 12 months later.
@Paul Woodford exceptional comment.......right on the money
@Paul Woodford Wow, absolutely agree with the author!
I love F150 and hate F stock.
F stock is a classic value trap.
My only serious comment would be to never discount the risk of bankruptcy in the long run its almost inevitable considering huge debt pile.

F is the only one out of big 3 that so far avoided that fate, but odds are not in their favour.

In terms of other huge negatives is Ford great grandson involvement, he has an insane annual compensation package for the privilege of being on the board and ruining the company.

F had a chance with Hacket, firing him was a mistake.

Capital allocation policy was just wrong.
F should have used good years to at least make an attempt at deleveraging balance sheet, taking care of unfunded pension liabilities and so on. Paying a high dividend during good times to keep Wallstreet at bay, was a serious mistake.

I am taking advantage of a current bull market to exit F position gradually.
There will be a temporary improvement in auto industry due to current macro environment, this is the only reason why my selling is a gradual process.

The company is not a long term investment.
With all due respect the author of this study, does not know that 1st Quarter results are out for all major auto companies. Ford reported that first-quarter earnings this year before interest and taxes — adjusted EBIT — was $4.8 billion, up from a negative $632 million in 2020 and up from $2.4 billion in the first quarter of 2019. The author never mentions 2021 first quarter results at all. Yet some of his charts and comments go back to 2012 data. Yes there is a chip shortage that is being address for all the new Ford products that are moving quickly off dealer lots. Not a word from the author on Fords current very positive future. Yes, I bought more Ford options today.
@hardway98 What dates and strikes?
I’ll be buying 1200 more shares tomorrow after buying 800 earlier in the week. Ford is turning things around BIG time.
I bought Ford on 5-4-21 before I read your article. I am carrying my holding with a 2.94% gain. The shortage of chips can not last forever. When the shortage appears to be ending, the stock should go to $13.00 or higher. Is my thinking off base?
vooch profile picture
MaaS = $60/share by 31Dec2023

check out Bill
Fords Ted talk from 2010
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.