There are a thousand automotive-related metaphors to describe the poor performance of Ford Motor Company (NYSE:F) stock. But I’ll just stick to a few.
It’s gone into a tailspin, plunging more than 11% this year. It was lapped by rivals such as General Motors Company (NYSE:GM), which only “skidded” to a loss of about 7%.
And Fiat Chrysler (NYSE:FCAU) burned rubber to a gain of 16%. This is a change of fortunes for long-time F stock holders.
Under former CEO Alan Mulally, F shares soared from a low of $1.39 to $16, a whopping gain of 1,051%. Mulally steered F through the Great Recession and the automaker was the only one of its peers to avoid a government takeover.
Unfortunately, ever since Mark Fields succeeded Mulally in 2014, the company’s stock has gone into reverse, plunging 37%. Fields has been caught in secular declines in auto sales that aren’t his fault. He is attempting to right F fiscal ship by trimming its salaried workforce in the U.S. and Asia. However, Fields’ pay $22.1 million 2016 compensation package seems excessive since it was an increase of 19% from the previous year.
For investors, though, the question is whether F shares are going to roar like its Mustang sports car or sputter like its once-proud Ford Explorer which Car & Driver recently trashed, arguing that its “subpar build quality, compromised interior packaging, and a thirsty standard V-6 engine fail to live up to the expectations set by its reputation, popularity, or specification sheet.”
Ford Stock Pros
Valuation: F stock is ridiculously cheap. They trade at near a 52-week low with a multiple of under 12, which is well under the average for the S&P 500, which is about 24. It’s trading at about a 20% discount to its average 52-week price target of $12.90. As an added bonus, Ford pays a dividend with a fat yield of 5.48%.
Cash-Rich: F stock is a cash-generation machine, with $19.7 billion at the end of last year, topping GM’s $16.5 billion and the $11.1 billion earned by FCAU. As of the end of the last quarter, F reported $17.8 billion in cash and cash equivalents. Again, that’s better than GM’s $12.9 billion and FCAU’s $15.4 billion.
New CEO: The Ford family dumped CEO Mark Fields after standing by their man for years and handsomely rewarded him with $60 million in compensation over the past three years. While that’s better late than never, the Ford board took way too long to come to that conclusion. Fields’ successor Jim Hackett was the head of Ford’s “Smart Mobility” program.
Maybe he’s got the tech background to bring F stock into the brave new world where young consumers are less interested in owning cars.
Ford Stock Cons
Share Buybacks: Why isn’t Ford doing massive share buybacks given how the cheap price of F stock and how flush the company is of cash relative to its peers? That question has been raised by numerous pundits and F shareholders. During the company’s recent annual meeting, Chairman Bill Ford said his family was as frustrated as everyone with the poor performance of F shares because it is the source of most of its wealth. However, rejected the idea of share buybacks, arguing that it wouldn’t work for a company that faces boom-and-bust cycles.
That view is not shared by its peers. GM, for instance, announced in January that it would repurchase $5 billion in stock this year.
Ford Family: Investors need to remember that Ford is still a family business. Descendants of Henry Ford control the Dearborn, Mich.-based company thanks to a separate class of stock that gives them 40% voting power. In other words, Wall Street can complain all that it wants about F’s poor stock performance and the Ford family doesn’t have to listen. Indeed, efforts to strip the Ford family of its control have failed at the company’s annual meeting for years.
Inventory: Ford is paying a heavy price to bolster its bottom line. As the Wall Street Journal noted last month roughly 40% of its vehicles that were sold in March went to car rental companies and other fleet buyers who typically get steep discounts. The automaker also carries higher inventory levels than its peers as the article notes. As automakers continue to face sluggish consumer demand, they are bound to add more incentives to move vehicles off dealership lots.
As of this writing, Jonathan Berr did not hold a position in any of the aforementioned securities.
