Ford Stock Price Forecast May 2022 – Time to Buy F Stock?

2021 turned out to be a rewarding year for Ford (F) stockholders as the stock rose sharply and was among the top S&P 500 gainers of the year. Life has however come a full circle for the stock and it has lost over 30% in 2022 and is among the bottom 50 stocks in the index.

Automakers, both legacy as well as EV (electric vehicle) companies are having a tough time in 2022. On the one hand, the global supply chain problems have only worsened amid the Russia-Ukraine conflict and on the other hand, rising inflation and rate hikes are fuelling recession fears. What’s the forecast for Ford stock and is it a good buy in May 2022?

Ford reported better than expected earnings

Last week, Ford reported its earnings for the first quarter. It generated revenues of $34.5 billion in the quarter which was 5% lower than the corresponding quarter last year. Its automotive revenues were $32.1 billion in the quarter which was slightly higher than the $31.13 billion that analysts were expecting.

The company said that “strong customer demand for its fresh lineup of vehicles in the first quarter of 2022 was tempered by persistent supply chain issues that reduced the speed with which the company could fulfill demand.”

Due to the supply chain issues, the company’s market share fell to 4.8% in the quarter as compared to 5.3% in the corresponding quarter last year. Ford has been prioritizing the sales of high margin models and is focusing more on retail sales as compared to wholesale sales which are typically low margin. Its wholesale deliveries fell 9% in the quarter to 966,000 units.

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Adjusted profits were better than expected

Ford posted an adjusted EPS of 38 cents in the quarter which was slightly higher than the 37 cents that analysts were expecting. Its adjusted EBIT was $2.3 billion in the quarter. However, the company posted a net loss of $3.1 billion in the quarter. The net loss was driven by the fall in Rivian stock. Ford is among the top Rivian investors and the value of its stake fell to $5.1 billion at the end of March, which was less than half of $10.6 billion at the end of December.

Rivian investment

Rivian stock has plummeted this year and according to the accounting rules, Ford has to report the mark-to-market gains and losses. Amazon also booked billions of dollars of losses on its Rivian investment in the first quarter. Both these companies had booked massive gains in the fourth quarter after Rivian’s strong listing. Ford declined to comment on the Rivian investment during the earnings call.

Ford maintained its guidance

Despite the global macroeconomic situation having worsened since its previous earnings release, Ford maintained its 2022 guidance of $11.5-$12.5 billion. It said that its manufacturing improved in March after the big dip in the previous two months. Notably, due to the chip shortage alone, the company added 53,000 cars to its inventory. These are fully built cars but for chips. Due to the increased investment toward working capital, the company generated negative free cash flows of $600 million in the quarter,

It added, “The company has committed to reaching worldwide EV manufacturing capacity of at least 600,000 by the end of 2023, for which it’s ramping up battery supplies, on the way to making more than two million EVs annually by the end of 2026.”

Ford has restructured operations

Earlier this year, Ford restructured its business operations and separated the legacy ICE (internal combustion engine) business from the electric vehicle business. It has become the first legacy automaker to take this decision.

The ICE business, which has been renamed Ford Blue, would work towards lowering costs. Here it is worth noting that Ford Blue would provide manufacturing and engineering capacity for the entire company, including the electric car business, which has been renamed Ford Model e.

During the first-quarter earnings call, Ford’s CEO Jim Farley said, “Ford Blue’s mission is to deliver a more vibrant and profitable ICE business, a business that’s going to serve in the short term as our profit and cash engine for the entire enterprise.” The company would channel most of its investments toward Ford Model e which would help it scale up EV production as well as invest more in autonomous driving.

Electric vehicles

F has also increased its investments toward electric cars and would now spend $50 billion by 2026. It expects to sell 2 million EVs by that year and by 2030, it is forecasting that half of its vehicles would be electric. It is also working to improve the margins and is targeting a company-wide adjusted EBIT margin of 10% by 2026. Meanwhile, some analysts especially Adam Jonas of Morgan Stanley doubt that the company would be able to scale up production that quickly amid the global shortage of key inputs.

Ford stock forecast

Wall Street analysts have a mixed forecast for F stock. It has received 11 buys, nine holds, and three sell ratings from the analysts polled by CNN Business. The stock has a median target price of $18.50 which is a premium of 32% over current prices. Analysts have been lowering Ford’s target price amid concerns over rising inflation and supply chain issues.

F stock long term forecast

The long-term forecast for Ford stock looks bullish. The company’s electric models have been getting a good response. It is scaling up its EV production which would add long-term value. It has already got the first-mover advantage in electric pickups with its best-selling F-150. Tesla delayed the launch of its pickup model Cybertruck to 2023 due to the chip shortage.

Ford stock looks a good buy

F stock looks like a buy looking at its strong growth outlook and the focus on profitability. The stock trades at an NTM (next-12 months) PE multiple of around 6.5x which looks quite reasonable. It has also reinstated the dividend and now has a dividend yield of 2.8%, which is higher than the S&P 500.

The crash in Ford stock looks like a good buying opportunity. There is bound to be volatility in the short term amid geopolitical tensions. However, the company’s long-term outlook looks reasonably bullish.

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