Ford’s Q3 Earnings Has Good and Bad News, but Is More Positive Than Negative
Company is resuming limited share buybacks; stock’s fair value estimate unchanged.
Ford Stock at a Glance
- Current Morningstar Fair Value Estimate: $24
- Ford Stock Star Rating: 5 Stars
- Economic Moat Rating: None
- Moat Trend Rating: Negative
Ford Earnings Update
We see no reason to change our Ford (F) fair value estimate after incorporating the firm’s third-quarter results into our model. Adjusted EPS of $0.30 beat the Refinitiv consensus of $0.27. Ford announced on Sept. 19 that part shortages left about 40,000 partially built vehicles in the quarter, and that it expected total company third-quarter adjusted EBIT of between $1.4 billion and $1.7 billion. It also confirmed full-year guidance for EBIT at $11.5 billion to $12.5 billion. The actual third-quarter number came in at $1.8 billion, and a $2.2 billion working capital benefit for the quarter brought automotive adjusted free cash flow to $6.6 billion year to date. Ford had been guiding for full-year free cash flow as high as $6.5 billion, so it has increased free cash guidance to $9.5 billion to $10.0 billion on anticipated strong auto results and continued strong pricing from scarce inventory. It also expects to wholesale all 40,000 unbuilt vehicles in the fourth quarter. However, a full-year commodity and inflation headwind for items such as logistics and other raw materials is now expected at $9 billion, up from $7 billion last quarter. Management is guiding for full-year adjusted EBIT of about $11.5 billion.
We think Ford had a good quarter given the market’s low expectations following the Sept. 19 preliminary results news. We are also glad to see Ford is resuming limited share buybacks to offset dilution from stock-based compensation, as was its custom prior to the pandemic. We’d welcome further buybacks given our belief the stock is undervalued and Ford has automotive cash and liquidity of $49.2 billion, including $32 billion of cash and securities.
Ford also announced it has sold its 49% stake in its Russian joint venture (terms not disclosed), but retains the option to buy it back within five years if political conditions improve. It also announced it is closing its Argo AI autonomous vehicle firm run with Volkswagen to focus on less advanced AV technology.
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