Ford (F) designs, manufactures, markets, and provides financing options for a range of automobiles. The company’s set to pivot into the electronic vehicle space amid a changing consumer base and surging demand for its initial models. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Electronic Vehicle Success
Ford released its F-150 lightning pick-up truck last year with tremendous success as surging demand depleted inventory across outlets. In response to the magnitude of recent demand, Ford has decided to double its planned output of the F-150 lightning in 2022 to 150,000 units.
According to the company’s Americas and International Markets president, Kumar Galhotra: “With nearly 200,000 reservations, our teams are working hard and creatively to break production constraints to get more F-150 Lightning trucks into the hands of our customers.”
Kumar proceeded to comment on the general market status by stating that: “The reality is clear: people are ready for an all-electric F-150, and Ford is pulling out all the stops to scale our operations and increase production capacity.”
The early success of the F-150 lightning is surely a relief to Ford as it’s committed to an investment cycle of at least $30 billion for the development of 23 plug-in models with a deadline set for 2025.
The pick-up truck’s demand could be a key identifier to assist in gearing its initial EV inventory, which could, in turn, allow Ford to manage its cash flows better and create more shareholder value as a result.
How the Market Could Play into All of This
There’s no doubting the argument that many EV stocks are likely overvalued after being hyped up in 2020/21. However, in Ford’s case, we’re looking at a stock with a broad-based revenue stream and not a stand-alone EV business model.
It’s possible that Ford’s core business and its financing segment could aid a gradual pivot into EVs without too much volatility introduced to the company’s earnings and, consequently, the stock’s performance.
The stock still has value in abundance if we use its valuation multiples as a reference point.
Breaking it down from a sector relative quantitative vantage point, Ford’s price-to-earnings ratio of 11.6x is 15% undervalued compared to the sector median of 13.7x. Ford is also 80% relatively undervalued based on its forward PEG ratio, 48.3% undervalued relative to its price-to-sales ratio, and 57.9% undervalued from a price-to-cash-flow perspective.
There will definitely be a party-ending inflection point for the automotive sector. However, this likely won’t be in 2022 as global GDP is still estimated to sustain itself above the higher bound of 3%.
Wall Street’s Take
Wall Street analysts are generally bullish on Ford stock, as the consensus rating is a Moderate Buy. There are nine Buy ratings, four Holds, and three Sells. The average Ford price target of $19.73 suggests that a downside of 12.4% is likely.
However, this is because most analysts are yet to update their price targets for 2022. We’ll likely see the average price target become more appealing as new price targets roll in this month.
Concluding Thoughts
Ford’s gradual pivot towards EVs could set it apart from other EV stocks as it still maintains its core business model. The stock is relatively undervalued, and above-average GDP growth forecasts for 2022 could see the stock outperform the market.
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Disclosure: At the time of publication, Steve Gray Booyens did not have a position in any of the securities mentioned in this article.
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