Company ProfileÂ (excerpt from Reuters): Ford Motor Company, incorporated on July 9, 1919, is a global automotive and mobility company. The Company’s business includes designing, manufacturing, marketing, and servicing a line of Ford cars, trucks, and sport utility vehicles (SUVs), as well as Lincoln luxury vehicles. The Company operates in four segments: Automotive, Financial Services, Ford Smart Mobility LLC, and Central Treasury Operations. Ford Smart Mobility LLC and Central Treasury Operations are combined in All Other. The Company’s vehicle brands are Ford and Lincoln. The Company sells its dealerships for retail sale, it also sells vehicles to its dealerships for sale to fleet customers, including commercial fleet customers, daily rental car companies, and governments. The Company also sells parts and accessories, primarily to its dealerships (which in turn sell these products to retail customers) and to authorized parts distributors (which in turn primarily sell these products to retailers). The Company also offers extended service contracts.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$33,366,215,390||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.19||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||-52.93%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||7.01||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||0.95||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.19||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||5.59||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Fail|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||-4.25%|
|MG Value based on 3% Growth||$17.66|
|MG Value based on 0% Growth||$10.35|
|Market Implied Growth Rate||-0.74%|
|% of Intrinsic Value||N/A|
Ford Motor Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.8 in 2015 to an estimated $1.22 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 0.74% annual earnings loss over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Ford Motor Company revealed the company was trading below its Graham Number of $13.9. The company pays a dividend of $0.6 per share, for a yield of 7%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 7.01, which was below the industry average of 21.23, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-26.81.
Ford Motor Company receives an average overall rating in the ModernGraham grading system, scoring a C.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$26.81|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Total Current Assets||$113,585,000,000|
|Total Current Liabilities||$95,569,000,000|
|Shares Outstanding (Diluted Average)||3,989,957,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$0.95|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.22|
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The author held a long position in F but did not hold aÂ position in any other company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.