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Nicholas Kitonyi
Nicholas Kitonyi
Articles (296)  | Author's Website |

Can Ford Sustain the Post-Earnings Rally?

Stock spiked after last week's earnings, but there is more to this rally as restructuring plan takes shape

April 29, 2019 | About:

Shares of global automotive giant Ford Motor Co. (NYSE:F) are up more than 30% this year. The rally has come after what has been a dreadful decline over the last several years.

Ford’s stock lost nearly 56% in market value between July 2014 and December 2018, with rebounds during that time lasting for short periods.

Since the beginning of the year, the automaker has witnessed one of its best runs in a while, which could indicate the stock has finally bottomed and could trigger a major rally. But for the rally to be sustainable, Ford will have to back it up with good results.

Based off its most recent quarterly results, Ford might be turning a corner. After the market closed last Thursday, the company posted non-GAAP earnings of of 44 cents per share, which beat estimates by 17 cents. Shares rose 10% in extended trading.

Revenue of $37.24 billion missed expectations by $130 million. In the first quarter, the company sold over 590,000 Ford and Lincoln vehicles, representing a 1.6% decline year over year. This was largely attributed to a 23% decrease in car sales.

On the other hand, SUV and truck sales continued to rise, driven by an increase in demand in North America. The premium pricing of this category helped to reduce the impact of the decline in car sales.

The company is in the process of implementing a restructuring plan that will see its European business remodeled into three verticals: commercial vehicles, passenger cars and imported vehicles from the U.S. The company’s restructuring is also expected to result in about 25,000 job cuts, which could boost the bottom line in the coming quarters.

During the earnings call, Ford Chief Financial Officer Bob Shanks said that given the results, the company now expects to deliver a better bottom line in 2019. 

The company's international sales have been facing various bottlenecks, including a slowdown in deliveries to dealers, which is partly why it is overhauling over $11 billion worth of business in a bid to cut costs.

On a positive note, the domestic market has been improving consistently and in the most recent quarter saw nearly a point in margin improvement to 8.7% due to a ramp up in SUV, trucks and Lincoln car sales.

Whether the company’s home market can keep this impressive performance going remains to be seen, but it is clear that Ford’s plan to reorganize is beginning to make sense to investors.

The company also offers an interesting value proposition to blue-chip investors. The stock is currently trading with a forward price-earnings ratio of 7.88, which is slightly above General Motors Co.’s (NYSE:GM) price-earnings ratio of 6.35. The forward dividend yield of 6.83% versus General Motors’ 4.10% yield indicates there are significant expectations for Ford’s growth prospects over the next 12 months.

In summary, Ford’s stock has rebounded over the last four months and the most recent quarterly results appear to be backing its restructuring plan. The next several quarters will be interesting to watch.

Disclosure: I have no positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

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