Ford Stock Surges 40% Post Q2 Results
August 11 2022 - 7:33AM
Finscreener.org
If you are already a shareholder
of Ford Motor Company (NYSE:
F), the last few trading
sessions would have made you smile. After dropping over 54% between
January 22 to July 13 this year, the stock has been making a solid
recovery. Since July 13, Ford stock has gained almost 40%. If media
reports are to be believed, the stock will continue to
rise.
Ford is a multinational automaker
with headquarters in Michigan that sells cars and trucks across the
globe. Ford Motor operates through three divisions: Ford Credit,
Mobility, and Automotive. The companyU+02019s Mobility section
designs and develops mobility services, while the Automotive
business sells vehicles. The Ford Credit business engages in
lending and leasing activities for automobiles to and via auto
dealers.
So what changed for Ford in the
last month?
Ford is generating stellar revenue
Ford released its
second-quarter earnings
recently, and the market was quite
impressed by its performance. Ford’s revenue for the quarter had
surpassed $40 billion, and it was the first time this happened
since 2019. Also, its adjusted operating margin reached 9.3%
beating market estimates handsomely.
The company stated it benefitted
from the favorable timing of shipments which is a far cry from Q2
of 2021, when a severe semiconductor shortage dented Ford’s revenue
and profitability..
For Q2, Ford’s wholesale volume
surged 89%, from around 327,000 units to 618,000 units. As a result
of this volume recovery, revenue in this business almost doubled to
$29.1 billion. The operating margin of the segment increased by 10
percentage points to 11.3%, enabling Ford to record a $3.3 billion
quarterly adjusted operating profit for the North American region,
which is significantly higher than the $200 million generated a
year ago.
Again, the company could also
more than triple its global adjusted operating profit to $3.7
billion due to this sharp rebound. Clearly, its efforts to
sustainably improve its profitability levels have paid
off.
Ford has a long way to go
Ford’s second-quarter earnings
were impressive, and it just might be the beginning of a multi-year
turnaround. However, it is still struggling to break out in two of
the largest overseas markets, i.e., Europe and
China.
As per the full-year guidance
provided by the company, it expects its adjusted operating profit
to be around $6 billion in the second half of the year, i.e., an
average of $3 billion per quarter.
Ford is experimenting with its
cash flows in the
electric vehicle
(EV) segment. EV makers
traditionally tend to burn cash at a rapid pace due to the
capital-intensive nature of the business. Ford has gone with a
different strategy of tying down subscription and services revenue
to smart, connected electric vehicles. It is also bringing in
cheaper
China-made LFP batteries
to North America for the first time
by 2023. This might provide the company with an edge over its
competitors.
Moreover, the cost-cutting
strategies, as well as the strategic decision to discontinue most
of its sedans and hatchbacks in the North American region, have
already helped it in turning around its operations to a large
extent.
Ford is trading only around seven
times its forward earnings and has got a massive upside potential
coming in. Ford closed trading at $15, and the consensus target
price for the stock is $18.36, a potential upside of around 21%.
The stock is a suitable buy for investors who believe in the
long-term potential of the company.
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