Portfolio Transformation Will Continue To Take Ford Stock Higher

Last year was one of the best in recent times for Ford (NYSE:F). This is view is applicable both in terms of business development and stock upside. In 2021, F stock surged by 136%.

Ford (F) dealership sign against a blue sky.
Source: D K Grove / Shutterstock.com

I believe that the stock is likely to remain in an uptrend through 2022. The first reason is valuation. With F stock climbing from oversold levels, it still trades at a forward price-to-earnings-ratio of 11.0.

As growth accelerates, driven by electrification of vehicles, F stock is likely to command better valuation.

Intensifying Competition Not A Concern

Let me first talk about competition. It’s estimated that in the current year, there will be 500 different EV models available globally. Competition is intensifying with the expansion of pure-play EV companies and entry of traditional automakers in the EV space.

However, I believe that Ford will grow and capture market share in the EV space. If we look at data from June 2021, Tesla (NASDAQ:TSLA) commanded a leading market share of 11% in the EV segment. This was the lowest reading for Tesla in terms of market share since January 2019. New electric vehicle companies have been able to capture market share from the leader in the segment.

Further, the global EV market is expected to grow at a CAGR of 29% through 2030. There is a big addressable market. This provides ample headroom for emerging players to grow through the next decade.

As a matter of fact, Ford has already witnessed robust growth in electric vehicle sales. In October 2021, the company reported EV sales of 14,062. On a year-on-year basis, sales were higher by 195%. For November 2021, EV sales increased by 153.6% on a y-o-y basis to 11,116 units.

Growth is further likely to accelerate in the next few years.

Big Investments in the EV Segment

Before talking about Ford’s investment in the EV segment, let’s briefly discuss the balance sheet.

As of Q3 2021, Ford reported $47.4 billion in cash balance and liquidity. Further, for the last quarter, the company reported adjusted free cash flow of $7.7 billion. This would imply an annualized FCF potential of $30 billion.

Therefore, Ford has ample financial flexibility to pursue aggressive investments in the electric vehicle segment.

In May 2021, Ford announced that the company will be investing $30 billion in the EV sector. The company targets to have 40% of volumes to be all-electric by 2030.

Furthermore, in September 2021, Ford and SK innovation agreed to spend $11 billion for EV and battery plants in the U.S. Ford will be investing $7.0 billion in the JV. The battery plans will support the company’s aggressive expansion push in the United States, Europe and China. The production of F-150 Lightening will also increase to 80,000 units on an annual basis. As I write, it’s being reported that Ford is planning to further increase production of F-150 Lightening to 150,000 units annually.

Additionally, Ford will also be building a BEV manufacturing center in Germany. Clearly, the company is betting big on the EV segment. These investments are likely to translate into accelerated growth in the next few years.

Specific to China, Ford already has 25 stores in metropolitan areas. Within the next five years, the company plans to expand to more than 100 stores. Locally produced Mustang Mach-E is likely to be one of the key delivery growth drivers in 2022.

Concluding Views

Mustang Mach-E, Bronco, Maverick, E-Transit, and F-150 Lightning are some of the iconic brand names from Ford. As these brands go electric, there is ample headroom for deliveries upside.

It’s also worth noting that the EV industry will witness consolidation in the next few years. Considering the financial flexibility, Ford is well positioned to survive and grow.

F stock has surged in the last 12-months. Some intermediate correction seems likely. However, any dip would be a good opportunity to accumulate the stock. Valuations are still attractive considering the big growth plans.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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