F - Embedded Expectations Analysis - 2021 06 08
Ford Motor Company (F:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 23.4x Uniform P/E, implying bullish expectations for the firm. Although management's concerns about chip shortages, growth investments, and business transformation suggest the potential for near-term headwinds, market expectations are still too bearish, and longer-term equity upside remains warrantedSpecifically, management may lack confidence in their ability to continue investing in growth, shift Ford away from a traditional OEM, and sustain structural cost reductions. In addition, they may have concerns about supply chain collaborations with the government, the negative cash flow and EBIT impact of lost volumes, and the performance of Ranger and its derivatives in international markets. Furthermore, management may lack confidence in their ability to reduce dealer incentives, and they may be exaggerating the flexibility of their balance sheet and the potential of their leaner inventory initiatives
Although management's concerns about chip shortages, growth investments, and their business transformation suggest the potential for near-term headwinds, market expectations are still too bearish given the firm's EV initiatives and strong brand, and longer-term equity upside remains warranted
Ford Motor designs, manufactures, markets, and services a line of Ford cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln vehicles, as well as provides financial services through its subsidiary, Ford Motor Credit Company LLC. The company is engaged in electrification; mobility solutions, including self-driving services; and connected vehicle services. The company has three operating segments: Automotive, which includes the sale of Ford and Lincoln vehicles, service parts, and accessories; Mobility, which includes its autonomous vehicles and its investment in mobility through Ford Smart Mobility LLC; and Ford Credit, which includes vehicle-related financing and leasing activities.
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