With its dividend suspended, there’s no reason to own Ford Motor (NYSE:F) stock. So why is F stock up about 9% since then?
Ford decided to suspend the 15 cent per share quarterly payout on March 19 in order to husband cash. It withdrew guidance and drew down credit lines by $15.4 billion.
Since March, the shares are up 9%. All I can ask is: why?
F Stock a Ticking Time Bomb
I have been an idiot regarding Ford.
I suggested people buy F stock a day before its dividend suspension, writing that the company could afford the payout. I bought the happy talk of analysts at Morgan Stanley, who thought free cash flow would cover it.
It’s the analysts predicting a bankruptcy filing I’m listening to now.
The problem is the debt I pointed to on March 9 as a strength. It’s mostly loans to customers to buy cars. In normal times this is not a problem. But with the pandemic sending unemployment to Great Depression levels, a lot of people aren’t going to make that payment. Ford is in no position to take the merchandise back. No one wants the collateral.
While Ford didn’t need a bailout for shareholders after the Great Recession, it may take one for its bonds now. About $37 billion of Ford debt is in the “high-yield” category. That means the Federal Reserve could buy some under its expanded bond buying authority. The market value of Ford debt is unknown because the Fed is holding up the market.
Ford is talking to unions about re-starting truck production on May 4. But who’s going to buy them? It’s not like we have someplace to go. Miles driven are down 60% globally.
Ford was supposed to debut new Bronco trucks early this year. It began taking reservations on a new Mustang in November. The company has also been moving toward production of electric vehicles. It’s a five-year plan that is no longer worth the cloud storage it was loaded on.
Disaster Tomorrow
Today may be your last chance to get out because Ford is due to report earnings tomorrow, April 28. It’s likely going to be a disaster.
The consensus estimate was for a loss of about $400 million, or 10 cents per share. The “whisper number” is for a loss of $1.4 billion, or 35 cents. Ford’s official estimate is for a $600 million loss on revenue of $34 billion. The consensus is revenue will be more like $30 billion.
It’s going to get worse, which is why Ford is husbanding cash. Car sales for the second quarter are now expected to be down 50% from a year ago. The only car company making money is Tesla (NASDAQ:TSLA), which is now worth twice as much as Ford, General Motors (NYSE:GM) and Fiat Chrysler (NASDAQ:FCAU) put together.
The Bottom Line on F Stock
I have been wrong on Ford for a long time now. I bought F stock in 2017, at $10.89 each. I wound up taking a loss of 15% on the position when I sold a year later, even after collecting dividends.
That should have been a clue.
Ford is now estimated to be losing $165 million per day. It probably has enough cash to make it through September. The analysts who are saying F stock is a “buy” are betting its factories re-start and that the second wave of the pandemic won’t kill the market.
That may be a good speculation, but that’s all it is. If the market were on fire, I’d be interested in a good speculation. It’s not right now, and I’m not. You shouldn’t be either.
If you bought Ford on March 8, the last time I wrote about it, take profits today and consider yourself lucky.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
