Ford Motor: Outsized Return Potential In 2019? - Ford Motor Company (NYSE:F)

Ford Motor: Outsized Return Potential In 2019? – Ford Motor Company (NYSE:F)

Ford Motor‘s (F) shares may outperform in 2019 on the again of bettering investor sentiment within the inventory market. Ford Motor’s shares stay grotesquely undervalued primarily based on earnings projections, and 2019 is probably going going to see some normalization within the commerce relationship between the United States and China. An funding in Ford Motor at present yields 7.2 % and comes with appreciable upside potential.

Market Environment

Ford Motor’s shares haven’t precisely been on the high of traders’ purchasing lists in 2018: Ford Motor was (and nonetheless is) on the forefront of the commerce struggle between the United States and China, and better tariffs have triggered each Ford Motor and General Motors (GM) to decrease their earnings forecasts final 12 months. The tariff stand-off between the 2 largest economies on the earth and lowered earnings projections have closely weighed on the auto sector. On the again of deteriorating investor danger urge for food for auto corporations, Ford Motor’s shares fell to a brand new multi-12 months low @$7.41 in December.

That being mentioned, although, Ford Motor’s shares have bounced again from their most up-to-date lows, due to bettering investor sentiment.

Source: InventoryCharts

Ford Motor has broadly underperformed the S&P 500 inventory market index in 2018:

Source: CNBC

Earnings Guidance

Ford Motor additionally lately up to date traders about its fourth quarter earnings, however the firm has not but launched full This autumn-2018 outcomes. According to Ford Motor’s press statement, the corporate nonetheless expects to report the next outcomes subsequent week (earnings launch is scheduled for January 23, 2019):

For full-12 months 2018, the corporate is saying preliminary EPS outcomes of $zero.92, and adjusted EPS of $1.30 – in step with the corporate’s most up-to-date steerage. The firm ended the 12 months with a robust steadiness sheet, with money of $23.1 billion and liquidity of $34.2 billion.

Ford Motor’s administration has beforehand guided for its earnings to fall into a spread of $1.30-$1.50/share which might imply This autumn-2018 EPS can be on the decrease finish of the earlier steerage vary.

Ford’s preliminary earnings launch comes after General Motors issued a bullish outlook on its enterprise which I mentioned in my article titled “General Motors: This Is A Game Changer“. General Motors’ shares popped after the auto firm raised its earnings and free money movement steerage for 2019. Ford Motor didn’t but launch its earnings steerage for the 2019 monetary 12 months, however will probably accomplish that on January 23, 2019.

Ford Motor did, nevertheless, declare a steady $zero.15/share dividend for the primary quarter. The Q1-2019 dividend can be paid on March 1 to shareholders of report on the shut of enterprise on January 31.

Surprise And Attractive Total Return Potential

Auto corporations together with Ford Motor are in place to outperform low earnings expectations and the broader inventory market in 2019, below two situations:

  1. The United States and China resolve their commerce dispute and work out a commerce deal (newest breaking news counsel that China is keen to work on eliminating the U.S. commerce deficit); and
  2. The U.S. financial system doesn’t slide right into a recession.

Should these situations be met, Ford Motor may recapture a number of the territory it misplaced in 2018, and shares may commerce again as much as the $11-$12 value vary. Since shares at present change fingers for $eight.36, implying ~32-44 % upside potential. Today, Ford Motor continues to be broadly undervalued, for my part, with shares promoting for simply 5.3x subsequent 12 months’s estimated earnings, making the corporate even cheaper than General Motors.

ChartF PE Ratio (Forward 1y) information by YCharts

Risk Factors Investors Need To Consider

Obviously, a cyclical financial downturn (implying contracting U.S. automobile gross sales, decrease shopper spending) and a continued commerce confrontation with China and not using a commerce deal are main danger elements that might derail the funding thesis. That mentioned, although, traders additionally may earn excessive danger-adjusted returns if the U.S. and China come to a commerce settlement and the U.S. financial system does not run out of steam in 2019.

Your Takeaway

General Motors’ outlook for 2019 was very bullish and Ford Motor will probably problem an earnings forecast subsequent week when it reviews earnings. A commerce decision, which I believe we’re shifting in direction of slowly, will probably be a serious constructive catalyst for Ford Motor’s shares. The low value traders pay right this moment for Ford Motor’s shares implies a good danger/reward, and it tilts the percentages in favor of traders incomes excessive danger-adjusted returns going ahead ought to the U.S.-China commerce battle be resolved.

Disclosure: I’m/we’re lengthy F, GM. I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from Seeking Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.



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