Ford (NYSE:F) is re-inventing itself with a new direction. It plans to separate its legacy internal combustion engine brands, which are essentially being phased out, in favor of electric vehicles. However, its falling share price suggests that investors aren’t too optimistic about its prospects. Nevertheless, the robust sales of its F-series pickup trucks and its incredible growth runway make Ford a buy for those who can stomach the near-term volatility. Hence, we are bullish on F stock at current price levels.
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The news that Ford would absorb $1 billion in unanticipated supply chain costs made its shares tumble. Ford expects to have a whopping 40,000 and 45,000 vehicles in its stock, weighing down its bottom line.
F stock has shed a ton of value since the start of the year; however, we think it will prove its resiliency in the coming years. Most of the pessimism surrounding the stock due to its weak third-quarter showing has been baked into its price. Moreover, its shares trade at just 0.3 times forward sales, and with a dividend yield of almost 4%, F stock remains an attractive bet at current prices.
Expect Near-Term Pain for F Stock
Management tried to alleviate investor nerves by reaffirming its 2022 adjusted earnings guidance of $11 to $12 billion. However, the cost of producing cars is skyrocketing, and Ford has had to take a second look at its estimates. The firm originally thought that inflation-related costs would come in at $2 billion, but it now expects an extra $1 billion.
The company has increased the price of its electric F-150 Lightning pickup truck for the second time in just two months. Moreover, the Ford Lightning Pro model is now more expensive than before. Its base price has increased by over 10% to $51,974, while its original pricing was well below $40,000. The company says it will continue monitoring pricing, suggesting it will have to do the same next year.
The auto industry has been in a boom-and-bust cycle for the past few years, but now that balance seems to have shifted. Experts believe that Ford’s transition to EVs will get even bumpier, with profits shrinking due to an oversupply situation.
Ford’s EV Transition is Underway
In September, Ford outpaced the industry with an incredible 197% growth in EV sales. Additionally, its share in the EV sector grew by 310 basis points and is now at roughly 7%. The F-150 Lightning helped lead growth, but even the Mustang Mach-E had its sales up 47% from the prior-year period.
The F-150 Lightning has been turning heads since its June release. It continues this success with an impressive sales rate each quarter. On top of that, we have The Mustang, which has been around for over 50 years. There was reason enough to doubt its potential as an EV, but the Mustang has been an incredible success so far.
With the rise of EVs, investors may be overlooking Ford’s potential. The company has shown it can develop hybrid or fully electric versions of its iconic muscle vehicles and sell them at incredible volumes.
What is the Target Price for F Stock?
Turning to Wall Street, F stock maintains a Moderate Buy consensus rating. Out of 15 total analyst ratings, 7 Buys, 6 Holds, and 2 Sell ratings were assigned over the past three months. The average F stock price target is $16.47, implying a 35.1% upside potential. Analyst price targets range from a low of $10 per share to a high of $28 per share.
Bottomline: Investors Should Take Notice of F Stock
With more and more people moving towards electric cars, it’s time for investors to take notice of Ford. It is replicating the sales success of its iconic trucks like Maverick and Mach-E with a new generation of electric versions. As a result, it will likely continue to be successful for a long time.
Ford’s management is confident it can produce 600,000 EVs by 2023 and 2 million within the next four years. Its EV CAGR would surpass 90% through 2026, meaning it could grow faster than the rest of the industry. The company needs to ramp up production if it wants to achieve its goal. It has massive plans for its EV portfolio and plans to invest more than $50 billion in the next five years, so it looks like it’s putting a lot of resources behind its ambitious efforts.
Perhaps the biggest incentive to invest in F stock is its valuation. With the markets in free-fall, it has shed a hefty amount of value this year. This means that it is trading at remarkably low price multiples compared to its peers. Therefore, it’s an ideal time to load up on F stock for the long haul.
