Home / World / Ford Is A Truck Company With A Truck-Sized Dividend – Ford Motor Company (NYSE:F)

Ford Is A Truck Company With A Truck-Sized Dividend – Ford Motor Company (NYSE:F)





With everything that has been said about electric cars and Tesla (TSLA) stealing steadily, it is easy to overlook the fact that there are other car manufacturers that offer attractive investment opportunities. The initial battle scene in episode 3 of season 8 of game of Thrones It showed the army of the dead essentially hallucinating over the defenses of the good. That is to say do not what Tesla is doing with the other manufacturers, except maybe in the amount of media coverage they're getting.

The reality is that the automotive industry is focusing more and more on niches, and there are other companies based in the United States that have a bastion in their respective niches.

Here is an example. While total car sales have been declining since 2013, sales of light and medium and heavy trucks continue to rise.



This dichotomy within the sector is what we believe will generate good investment opportunities and, in some cases, these opportunities are of the income generating variety.

Investment thesis

Ford Inc. (F) On April 25, 2019, on April 25, 2019 reported optimistic earnings figures and, while it is difficult to predict whether the company can successfully restructure its business model or at least counteract the headwinds, I think its strong participation of market within the trucks provides stability and competitiveness. Advantage over some of the other car companies.

The action recently halted a one-year crash, and although I wish I had jumped earlier this year, I still do not think it's too late. The increase in competitive pressures and excess capacity drove the fall in share prices in recent quarters, especially in the segment of passenger vehicles. The company is investing in new high potential product lines such as trucks or SUVs, as well as future trends such as electric and autonomous vehicles. We hope it can contribute to higher revenues combined with better EBIT margins driven by ongoing restructuring initiatives. The stock trades at a final P / E ratio of 10.2x against the median pair of 6.2x with a dividend yield of 6.3%. Despite the competition of General Motors (GM) in the truck category, the F-150 Series has been considered the best-selling truck for 41 consecutive years.

Business transformation



(Source: Presentation for investors, April 2019)

Ford's core business consists of products such as the F-Series, Transit, Explorer and Ranger trucks that generate the majority of the company's EBIT, and management plans to invest additional capital and resources in the winning businesses. However, the market has been concerned about how the company will deal with lower-performing companies such as its sedan line and other passenger products.

I think these concerns are exaggerated. Ford has a very strong pit, truck leadership with its F series, less competition abroad within the trucks and very loyal customers. While it is true that it faces challenges in the passenger vehicle market, that segment is characterized by an aggressive price and an intensive capital expenditure to add consumer-driven features that other manufacturers are the first to market. And customers are not as loyal in the passenger vehicle segment as they are in trucks.

One of the changes the company is making to reduce costs is, in a way, a reversal of previous operating trends. Instead of having production lines focused on multiple types of vehicles, Ford is migrating to a product line, where employees invest more in a specific product line.



(Source: Presentation for investors, April 2019)

It is expected that each team within the Ford company will understand every little detail of the underlying product and the customers it serves. Generally, they adhere to the same product line over several product cycles, creating a better environment to continually develop new product lines that address the requirements or challenges of current customers.



(Source: Presentation for investors, April 2019)

With the automotive industry going through rapid technological changes, the ability to update the product portfolio quickly becomes equivalent to maintaining or increasing market share.

Expansion plans or new opportunities.



(Source: Presentation for investors, April 2019)

Management sees a great opportunity in the rugged off-road segment of the adventure and has finally decided to compete face to face with Jeep. That's why the company bets heavily on the Bronco that is expected to enter the market in 2021, replacing outgoing Fusion and other similar products. Management is highly optimistic about its strong impact on profitability, a change of EBIT of $ 1 billion, although the volume could be lower compared to that of existing products or direct peers.

Good. And then, maybe think specifically about the Bronco and, for selfless reasons, really think about the winnings here. We look at the Wrangler, right, direct competition, historically 150,000 units, right? Great profitability We could argue that it is almost one-third to one-half of FCA's total return. They increased to 250,000. And then, you have the Gladiator that is being launched. They have North and South Toledo. Then, it will be a program of 400,000 units. So, what was a great program for Fiat Chrysler, which is a kind of nichey product that is carrying a large volume, is a risk that maybe, at least in our opinion, disappears enough for them. Time because they are saturating the market.

Source: Jim Baumbick, BofA Auto Summit

Results for the first quarter of 2019



(Source: Press Release, April 2019)

The group's executive president, Jim Hackett, stated:

With a solid plan in place, we promised that 2019 would be a year of action and execution for Ford, and that's what we delivered in the first quarter. We are satisfied with the progress and optimism that it brings. Our global team continues to work tirelessly to improve our operational skills, delight customers with increasingly better vehicles and services and prepare Ford to win in the future. Our goal continues to be to become the most reliable company in the world, designing intelligent vehicles for an intelligent world. "

Source: Press release, April 2019.



(Source: Presentation of Results for Q1, April 2019)

The company reported total group revenues of $ 40.3 billion in Q1 & # 39; 19, down 3.8% Y / Y. However, the company's adjusted EBIT was 20% higher than the annual index, driven by positive seasonal factors and commercial success. In addition, the administration is highly optimistic that it can achieve good results for the whole year 2019 compared to previous years. The company reported a 1Q0 BPA of $ 0.44, exceeding analysts' consensus estimate of $ 0.26.



(Source: Press Release, April 2019)

The strong performance of the North American truck and SUV business continues in Q1 & # 39; 19, and the F series continues to maintain a leading position with 94,585 trucks compared to its closest competitor, GM. The demand for the F Series was driven by the latest technology offerings, which led to an average transaction price of $ 47,454. The company sold 9,421 Ranger trucks in Q1 & # 39; 19, adding to the Ford truck franchise and making it the best Q1 for collection sales in 15 years. Ford SUV reported record sales in the first quarter totaling 193,753 vehicles, or 3.5% Y / Y, driven by the strong performance of the Expedition line that totaled 21,773 vehicles sold, or 61.9%. Another line of high growth is EcoSport, 111.3% Y / Y., and the company anticipates that there will be no problems related to the supply of SUVs in the coming quarters. Ford's commercial line is working exceptionally well, with reported sales of more than 50,000 vans and the new Transit Connect line for a total of 8,940, or 34.9% Y / Y.

The passenger car business has deteriorated in recent quarters, and the company reported total auto sales of 98,265, or a decrease of -23% Y / Y. Of the most iconic automotive products in the economy, only the line Ford Fiesta has performed well, with a total of 15,943 vehicles, or 29.6% Y / Y, while the Focus, C-Max and even Mustang have been in double-digit Y / Y decline.



(Source: Press Release, April 2019)

During Q1 & # 39; 19, approximately 50% of European sales were for commercial vehicles and SUVs. Management expects continued growth of both segments in Europe, driven by the launch of new commercial vehicles such as the Transit Custom PHEV and SUVs. In terms of commercial vehicles, the best performance was the Ford Transit model, with an increase of 11.8% in the year, and the Ranger, with an increase of 15.6% in the year. Both passenger vehicle sales and market share have been in a sharp decline in Q1 & # 39; 19, offset by the strong performance of the Ford Focus line totaling 66,900 units, or an increase of 11.7% Y / Y The administration expects a continuous positive trend for the Focus line, as the Wagon and Active derivatives drive European sales and the Focus ST line to enter the European market later in 2019. In general, sales figures in the US UU / Europe show a greater variety of truck and SUV products on the flagship car business, and we believe that this trend will continue soon.



(Source: Presentation of Results from T1 & # 39; 19, April 2019)

Management expects to maintain a solid balance and investment grade ratings, driven by solid operating performance in 2019. The company reported $ 24.2 billion in cash against a target of $ 20 billion and $ 35.2 billion in liquidity against a goal of $ 30 billion. The administration is doing everything possible to increase liquidity and financial flexibility by an additional $ 3.5 billion in the supplemental credit line and to extend the corporate revolver of $ 13.4 billion at the end of April 2019.

Valuation

The consensus estimate of the analysts for FY19 and FY20 is a total revenue of $ 145.5 billion and $ 146.3 billion, respectively. Shares are now traded at an advanced P / E multiple of 7.34x.

We believe that the market has discounted the current price of the shares due to the great uncertainty about the way in which the company will deal with the realization of its restructuring plan and, especially, with the deceleration of the main business of passenger cars. The adverse effects of FX and tariffs, combined with the intensified competitive pressures of the global auto industry, exert additional pressure on stocks. This recently led to a 15% decrease in the share price, with a minimum price of $ 7.50 at the end of December 2018 combined with a greater number of analysts' rebates in the last year.

The action is currently being negotiated among analysts' price targets around the consensus estimate. With a dividend of 6%, I do not mind waiting to see how this works.

My take

This is the automotive industry and, despite being a staple of the US economy. UU For decades, it is going through an important secular change that, honestly, I do not think anyone can predict. From the millennials that drive less to the cars they drive on their own, the trend seems to point to fewer cars, even if the same number of cars is on the road.

There are also more short-term risks around trade wars, commodity prices and changes in consumer tastes, not to mention aggressive prices on certain types of vehicles.

While Ford has a bastion in the truck segment and loyal customers, it could be a matter of time before even Ford supporters begin handing over their keys to an Uber application (UBER). That, however, is far away, and I would be happy with the collection of dividends until that day arrives. If you are excited about Tesla and can deal with its founder and the volatility of the actions, these actions can be too boring for you. But if you are looking for a sizeable dividend from an iconic American brand, you may want to take a close look at Ford. We like the dividend yield of 5.8% and we think there is a good chance that it could increase 15% in the next year or two.

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Revelation: I am / we are long F. I wrote this article myself, and expressed my own opinions. I am not receiving compensation for it (except for part of Seeking Alpha). I have no business relationship with any company whose actions are mentioned in this article.

Additional disclosure: This article aims to identify an idea for future research and analysis, and should not be taken as a recommendation to invest. It does not provide advice or individualized recommendations for any specific reader. Also keep in mind that we may not cover all the relevant risks related to the ideas presented in this article. Readers must carry out their own due diligence and carefully consider their own investment objectives, risk tolerance, time horizon, fiscal situation, liquidity needs and concentration levels, or contact their advisor to determine if any of the The ideas presented here is appropriate for your particular circumstances. In addition, none of the ideas presented here is necessarily related to NFG Wealth Advisors or any portfolio managed by NFG.


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