Ford Has Strong Second Quarter and Increases Dividend to Prepandemic Level
We see Ford stock undervalued with a $24 fair value estimate.
Ford Stock at a Glance
- Current Morningstar Fair Value Estimate: $24
- Star Rating: 5 Stars
- Economic Moat Rating: None
- Moat Trend Rating: Negative
Ford Earnings Update
Ford (F) reported a strong second quarter that gave us no reason to change our fair value estimate from $24. As we were modeling, the firm announced a return to its prepandemic quarterly dividend of $0.15 per share, up from $0.10. Adjusted diluted EPS of $0.68, which excludes a $2.4 billion mark-to-market loss on Ford’s Rivian stake, beat the Refinitiv consensus of $0.45 and a 57% year-over-year increase in auto revenue to $37.9 billion beat consensus of $34.3 billion. The company had a weak second-quarter 2021 as a result of being hit hard by the Renesas chip plant fire in Japan, but Ford’s 2022 U.S. sales in recent months have shown strong growth in lucrative light-truck models such as the F-Series, Explorer, and Lincoln Navigator.
Pricing is also important because second-quarter commodity and freight cost increases year over year of $1.5 billion and $700 million, respectively, were not small. Net pricing was a $2.3 billion adjusted EBIT tailwind, mostly from North America and Europe, while volume and mix was a $4.4 billion boost. North America was all of the volume and mix tailwind which helped that segment post an impressive $3.3 billion of operating income and an 11.3% segment margin, up by $3.1 billion and 10 percentage points. We are glad to see Ford confirm its full-year guidance and say it expects a slight improvement in commodity cost headwinds in the second half versus first, though still a full-year headwind of about $4 billion.
Ford Faces Inflation and Foreign-Exchange Headwinds
However, other inflation headwinds for things like freight are now expected to total $3 billion this year, up from $2 billion expected last quarter. Also, the strong dollar against the euro and other currencies means a foreign-exchange headwind for the back half versus first half and an expected increase in new-vehicle supply means a moderation in Ford Credit’s pretax income due to expectation of lower auction values. Ford also sold 25.2 million of its 101.9 million Rivian shares.
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