Ford Motor Company (NYSE: $F), a leader in the auto industry, has recently been weighed down by various challenges. In the past, Ford’s CEO Jim Farley has acknowledged they have some deeply entrenched issues that have been tough to root out. The company’s annual costs are many times higher than rival automakers.
Challenges Facing Ford
Ford shares closed out 2023 on a high note, surging almost 19% in December after a turbulent year. However, Ford’s 5% stock gain for FY23 falls short of the S&P 500’s strong 24% return.
However, Ford faces challenges, including production delays from past United Auto Workers (UAW) strikes and plans to halve F-150 Lightning EV production this year amid slowing industry EV sales.
The new UAW contract running through 2028 will also cost Ford $8.8 billion. But with resilient overall vehicle demand and decisive actions by CEO Jim Farley to cut costs and boost productivity, analysts see reasons for long-term confidence.
Profit, Revenue, and Sales Estimates Signal Ongoing Struggles
Ford’s stock price relies on investors’ outlook for future profits. When earnings estimates rise, the stock’s fair value increases. That attracts investors to buy the shares, driving up the price.
Analysts expect Ford to report earnings per share of $0.13 for the current quarter. That would represent a steep 74.5% drop compared to last year. Over the past month, analysts have held their earnings per share (EPS) forecast steady for the quarter.
The consensus EPS estimate for the full fiscal year is $1.86. That would be a slight 1.1% decline compared to the prior year. Analysts have kept their full-year outlook the same over the past 30 days.
The next year’s consensus EPS estimate is $1.77. That suggests a 4.9% year-over-year decrease in earnings. Again, analysts have left their forward estimate unchanged over the past month.
On the top line, analysts expect Ford’s sales to be $36.6 billion for the current quarter, down 12.4%. For the full year, the sales consensus is $159.29 billion, representing 6.9% growth. Next year, analysts forecast sales will rise another 1.1% to $161.04 billion.
Lingering Concerns Temper Investor Enthusiasm
Ford’s operations require steady, hefty capital investments in production facilities, an enormous labor force, marketing, and finance research and development efforts. It is exceptionally capital-expensive but necessary to keep the automaker competitive.
The capital-intensive nature of Ford’s operations makes Ford an unattractive venture for investors. Moreover, there is no indication that this will change.
Potential investors looking into adding F stock to their portfolio should examine Ford’s history of investor returns. The stock’s average 10-year return is 2.42%, well below the average 10-year return of the S&P 500 of 12.02%.
Past Growth and Profit Margins Raise Concerns
In the multi-year time frame between 2012 and 2022, Ford’s absolute income expanded at a compound yearly pace of only 1.6%. Furthermore, from 2022 to 2027, analysts project the business will post annualized deal gains of 4.1%. That would be superior to anything in the past, but it is a little to get excited about.
Ford’s modest valuation and momentum cost-to-profit proportion of 7.6 may be alluring for certain investors. However, there are more appealing options available. There is no evidence that it can generate market-beating returns over an extensive stretch.
Ford reliably produces a low operating margin. However, it needs to scale profits to support productivity, which has yet to show any improvement in the long haul. There has not been any reasonable marker of edge expansion over the past few years, which investors look out for.
2024 Outlook More Positive with Hybrid Focus
Ford’s new focus on hybrids could be the formula for success in 2024. The hybrid segment posted strong numbers in Q4 2023, growing 55.5%. In the same period, the less profitable electric vehicles (EVs) grew only 27.5%.
However, Ford is still committed to its gradual switch to EVs, where Ford aims to be a pioneer. The company is committed to expanding its EV production capacity through its Model E division in the coming years.
Regarding EVs, the heightened competition in the space and slowing EV demand will make it more difficult for Ford to sell more units and become profitable in the segment.
Despite the challenges facing Ford, dividend investors may consider purchasing the stock. F stock is considered a high-yielding dividend stock.
Should You Add F Stock To Your Portfolio?
The road ahead is filled with uncertainty for Ford investors. Despite the late 2023 rebound, lingering doubts persist about Ford’s long-term growth prospects as it navigates industry headwinds.
Forecasts call for a slow climb to $12 by mid-2024, $15 by the end of 2025, and $17 by 2027. However, given competitive pressures, Ford’s ability to achieve these targets remains in question. After a rollercoaster that was 2023, Ford still has much work to do to win over more bullish sentiment from Wall Street in the future.
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