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Ford Has Strong Second Quarter and Increases Dividend to Prepandemic Level

We see Ford stock undervalued with a $24 fair value estimate.

Securities In This Article
Ford Motor Co
(F)

Ford Stock at a Glance

  • Current Morningstar Fair Value Estimate: $24
  • Star Rating: 5 Stars
  • Economic Moat Rating: None
  • Moat Trend Rating: Negative

Ford Earnings Update

Ford (F) reported a strong second quarter that gave us no reason to change our fair value estimate from $24. As we were modeling, the firm announced a return to its prepandemic quarterly dividend of $0.15 per share, up from $0.10. Adjusted diluted EPS of $0.68, which excludes a $2.4 billion mark-to-market loss on Ford’s Rivian stake, beat the Refinitiv consensus of $0.45 and a 57% year-over-year increase in auto revenue to $37.9 billion beat consensus of $34.3 billion. The company had a weak second-quarter 2021 as a result of being hit hard by the Renesas chip plant fire in Japan, but Ford’s 2022 U.S. sales in recent months have shown strong growth in lucrative light-truck models such as the F-Series, Explorer, and Lincoln Navigator.

Pricing is also important because second-quarter commodity and freight cost increases year over year of $1.5 billion and $700 million, respectively, were not small. Net pricing was a $2.3 billion adjusted EBIT tailwind, mostly from North America and Europe, while volume and mix was a $4.4 billion boost. North America was all of the volume and mix tailwind which helped that segment post an impressive $3.3 billion of operating income and an 11.3% segment margin, up by $3.1 billion and 10 percentage points. We are glad to see Ford confirm its full-year guidance and say it expects a slight improvement in commodity cost headwinds in the second half versus first, though still a full-year headwind of about $4 billion.

Ford Faces Inflation and Foreign-Exchange Headwinds

However, other inflation headwinds for things like freight are now expected to total $3 billion this year, up from $2 billion expected last quarter. Also, the strong dollar against the euro and other currencies means a foreign-exchange headwind for the back half versus first half and an expected increase in new-vehicle supply means a moderation in Ford Credit’s pretax income due to expectation of lower auction values. Ford also sold 25.2 million of its 101.9 million Rivian shares.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

David Whiston

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007.

Before Morningstar, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner. In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011.

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