We've been asking ourselves recently if the market has placed a fair valuation on Ford Motor Company. Let's dive into some of the fundamental values of this large-cap Consumer Discretionary company to determine if there might be an opportunity here for value-minded investors.
Ford Motor Company's Valuation Is in Line With Its Sector Averages:
Ford Motor Company develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Ford Motor Company has a trailing 12 month P/E ratio of 20.2 and a P/B ratio of 1.41.
When we divide Ford Motor Company's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -1.06. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Exceptional EPS Growth at the Expense of a Highly Leveraged Balance Sheet:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $155,900 | $127,144 | $136,341 | $158,057 |
| Gross Margins | 13.6% | 11.3% | 15.9% | 15.0% |
| Operating Margins | 6.4% | 3.3% | 7.2% | 8.1% |
| Net Margins | 0.03% | -1.01% | 13.16% | -1.25% |
| Net Income (MM) | $47 | -$1,279 | $17,937 | -$1,981 |
| Net Interest Expense (MM) | -9,712 | -9,806 | -6,794 | -7,139 |
| Net Interest Expense (MM) | -$9,712 | -$9,806 | -$6,794 | -$7,139 |
| Depreciation & Amort. (MM) | -$8,490 | -$7,457 | -$5,960 | -$6,493 |
| Earnings Per Share | $0.01 | -$0.32 | $4.45 | $0.74 |
| EPS Growth | n/a | -3300.0% | 1490.63% | -83.37% |
| Diluted Shares (MM) | 4,004 | 3,973 | 4,034 | 3,930 |
| Free Cash Flow (MM) | $10,007 | $18,527 | $9,560 | -$13 |
| Capital Expenditures (MM) | -$7,632 | -$5,742 | -$6,227 | -$6,866 |
| Net Current Assets (MM) | -$111,260 | -$119,706 | -$99,417 | -$96,241 |
| Current Ratio | 1.16 | 1.2 | 1.2 | 1.2 |
| Long Term Debt (MM) | $101,361 | $110,341 | $88,400 | $88,805 |
| Net Debt / EBITDA | 7.88 | 8.47 | 3.86 | 10.59 |
Ford Motor Company has exceptional EPS growth, stable revenues and a flat capital expenditure trend, and generally positive cash flows. However, the firm suffers from slimmer gross margins than its peers and a highly leveraged balance sheet. Finally, we note that Ford Motor Company has average net margins with a positive growth rate and just enough current assets to cover current liabilities.
