Ford Gets Dented By Inflation, Supply Chain Issues

Near-Term Headwinds Send Ford To 4-Month Low 

Shares of Ford NYSE: F are down in the wake of the Q4 earnings report and we are cheering the move. The decline has the stock trading at a 4-month low and levels almost too good to pass up with the long-term outlook for car sales and EV the way that it is. In our view, the company’s earnings and profit outlook are a disappointment but only in relation to the analyst's expectations and that is an opportunity for investors. 

Supply chain and inflationary hurdles cut into both the top and bottom-line results but the results are still strong, the company is still making money, and it is still on track to dominate the EV market within the next few years. Ford is already the #2 EV producer in the U.S. and it is projecting an annual capacity of at least 600,000 BEVs by next year which puts them in a good position to take the #1 spot. Tesla, the world’s largest BEV manufacturer, made only 936,172 vehicles last year compared to the 1.9 million total vehicles sold by Ford. 

Ford Posts Strong Quarter, Guides For Double-Digit Growth 

Ford did not have a bad quarter and did not give bad guidance but it did fall short of profit estimates and the outlook is equally mixed. The $37.7 billion in Q4 revenue is up 4.7% from last year and beat the consensus by 580 basis points but inflation cut deeper into the bottom line than was expected. The company’s gross margin improved to 5.4%, up from -0.6% last year, with strength in the U.S. offsetting weakness in both Asia and the EU. Conditions in all three regions are expected to improve in the back half of the year but the current quarter will be difficult with microchip and component shortages related to microchips impacting production capabilities. 

“Continued variability in supplies of key components, with full-year vehicle wholesales nonetheless being up about 10% to 15%, with a high single- to a low double-digit decline in Q1, reflecting supplier shortages related to COVID shutdowns and semiconductors”

Moving down to the earnings, the company posted $0.26 in adjusted earnings or $0.15 shy of the consensus and $0.08 shy of last year’s take. The good news is that income, cash flow, and free cash flow are all up on a YOY basis and are expected to grow in the coming year. That said, the 15% to 25% in projected EBIT growth is heavily dependent on supply chains coming back into alignment and short of expectation. The upshot is that assuming supply chains are able to rebound, the back half of the year could be quite strong. 

Undervalued Ford Pays A Safe Dividend 

Ford is no high-yielding stock but its 1.0% yield is incredibly cheap to buy at 10X earnings and there is an expectation for a dividend hike as business conditions improve. The company cut the distribution when the pandemic struck and has only recently reinstated the payment at a lower rate than in the past. This opens the door for at least a 50% increase and maybe more if profitability improves significantly as is expected in the back half of the year. 

The Technical Outlook: Ford Falls To New Low 

Shares of Ford have been falling over the past few weeks and may fall even further before the bottom is hit. The post-release action has shares down more than 7.0% in premarket trading without any targets for strong support close by. The first target for possible support is near the $18 level where we would expect to see a bounce at least. If price action can not hold onto that level, we see it falling to the $16 level where it would present an even bigger value. Longer-term, we see Ford shares moving up on a multiple expansion driven in no small part by the ramp of its BEV production.