How long until Ford (NYSE:F) reaches $20 a share? Will it take two, four, or even six years for F stock to double its price?
That was the question I recently asked about Disney (NYSE:DIS). Only in Disney’s case, it was $200, not $20, but the sentiment is the same.
The auto maker is trying to secure a future for itself in the global automotive marketplace. How well it adapts to the electrification of motor vehicles and the rollout of self-driving cars will dictate how fast Ford stock moves higher.
Recently, Ford announced that it was partnering with Volkswagen (OTCMKTS:VWAGY) on self-driving and electric vehicles. The news briefly sent the F stock price higher, pushing near its 52-week high of $10.74.
But then the shares came back down closer to $10 as the company prepared to release its second quarter earnings on July 24. As I write this, just hours before the earnings release, Ford’s expected to see revenues decline by 2% year over year to $35.2 billion with earnings per share of 32 cents, five cents higher than last year’s comparable period.
Whatever the financial results, I would have thought the partnership with VW would have moved Ford stock much higher. Up almost 39% year to date including dividends through July 23, I guess it’s already achieved quite a bit in 2019. That’s after it was left for dead earlier in the year, trading below $8 a share. Now, it’s bounced back nicely and the question is whether it gets to $20 in two years, four years or six.
How Ford Stock Gets to $20 in 2 Years …
For Ford to get to $20 by July 2021, it’s got to do two things.
First, it needs to improve its businesses in both Europe and China. In the first quarter, revenue in Europe fell $1.3 billion to $7.6 billion with EBIT earnings of $57 million, $62 million lower than a year earlier. In China, revenue fell by $400 million while its loss improved by $22 million during the first quarter to $128 million.
Those have to improve in fiscal 2019 and 2020.
Second, it needs to be close to launching its robotaxi service in 2021. Its partnership with Volkswagen should help that. It’s currently testing autonomous vehicles in five U.S. cities and will expand the tests to Europe in 2020.
Should it be successful in launching its robotaxi service by the end of 2021, AI Argo, the self-driving unit now controlled 50/50 by Ford and Volkswagen will be worth a lot more than its current $7 billion valuation.
… 4 Years
OK, let’s not rush it. What if it took four years for the Ford stock price to double? Shareholders would achieve a compound annual growth rate of 18.3%, and that doesn’t even count dividends. That’s not a bad return by any stretch of the imagination.
To do that, Ford doesn’t need to meet its 2021 target, but there should be evidence that it would be up and running by the end of 2022. Also, Ford says it plans to deliver more than 600,000 electric vehicles in Europe over six years as part of its $11.5 billion electrification investment. If it gets half of those 600,000 EVs into Europe by the end of 2021, I’d be confident the rest would be delivered in short order.
Most importantly, however, is that Ford needs to improve its profit margins. In the first quarter, its EBIT margin was 5.4% on a global basis, 100 basis points higher than a year earlier. If it can deliver better margins in Europe, the odds of reaching $20 in four years rises exponentially.
What if it Takes 6 Years for Ford Stock to Double?
The only way that Ford takes six years to get to $20 is if a recession hits and people stop buying its cars. driving profits and free cash flow into the ground. While the drums are beating louder for a recession in the next 12-24 months, most experts are skeptical it will happen sooner rather than later.
In the meantime, despite weakness in Ford’s sales, its business is solidly profitable. Unless CEO Jim Hackett trips up, which he very well could, I’d be shocked if Ford stock wasn’t able to deliver a 12% compound annual growth rate over the next six years.
However, stranger things have happened.
Long-term, I like Ford stock, something I wouldn’t have said two years ago, which in my book is real progress.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
