Ford Motor Company

F Details

Decent Q3FY20 Results: Ford Motor Company (NYSE: F) is an American multinational automaker that designs, manufactures, markets, and services a full line of Ford cars, trucks, SUVs, electrified vehicles and Lincoln luxury vehicles. As on 2 November 2020, the market capitalization of the company stood at ~$30.67 billion. During the third quarter of FY20, the company posted decent financial results and reported a net income of $2.4 billion with a net income margin of 6.4% on revenue of $37.5 billion. It benefitted from its strengths in high-demand and profitable vehicles and generated $6.3 billion in adjusted free cash flow and reported total liquidity of over $45 billion after fully repaying $15 billion in revolving credit.

Quarterly Financial Highlights (Source: Company Reports)

Guidance and Outlook: The company has provided guidance for its results for the fourth quarter and expects adjusted EBIT to be between break-even and a loss of $500 million. However, it expects to report a positive adjusted company EBIT for FY20. The company is likely to witness lower wholesale shipments of F-150 of ~100,000 units and may incur higher structural and other costs due to launch activities for new products. The company plans to report fourth-quarter 2020 financial results on 4 February 2021.

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has unlocked decent value around its automotive operations. However, it may witness some uncertainty from the global health pandemic. The stock of Ford Motor Company gave a return of 15.24% in the past three months and a return of 11.90% in the last one month. The stock is currently inclined towards its 52-weeks’ high levels of $9.57.  On a technical front, the stock of Ford has a support level of ~$6.61 and a resistance level of ~$8.35. We have valued the stock using the P/CF multiple based illustrative relative valuation and have arrived at a downside of lower single-digit (in % terms). For the said purposes, we have considered General Motors Co (NYSE: GM), Fiat Chrysler Automobiles NV (NYSE: FCAU), Honda Motor Co Ltd (NYSE: HMC), as peers. Considering the current trading levels, guidance for EBIT and softer market conditions due to the global health pandemic, we suggest investors to wait for a better entry level and give an ‘Expensive’ rating on the stock at the closing price of $7.71, down by 0.26% on 2 November 2020.

F Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

General Motors Company

GM Details

Delivery of First Infantry Squad Vehicle to U.S. Army: General Motors Company (NYSE: GM) delivers integrated vehicles, power & propulsion, and mobility & autonomy solutions to global defense, security, and government markets. As on 2 November 2020, the market capitalization of the company stood at ~$49.44 billion. The company has recently delivered the Infantry Squad Vehicle to the U.S. Army as part of a $214.3 million contract. As per the contract, the company will manufacture 649 ISVs and will also support the production of ~2,065 vehicles with additional authorization over eight years.

Q2FY20 Highlights: During the second quarter of FY20, the company reported decent earnings despite significant impacts on production and wholesales because of the COVID-19 pandemic. During the quarter, the company reported revenue of $16.8 billion and automotive liquidity of $30.6 billion. In the same time span, the company reported an auto operating cash outflow of $8 billion and posted a diluted EPS loss of $0.56 per share.

Quarterly Results Update (Source: Company Reports)

Valuation Methodology: Price to Cash Flow Multiple Based Relative Valuation (Illustrative)

Price to Cash Flow Multiple Based Relative Valuation (Source: Refinitiv, Thomson Reuters)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The company has a track record of making swift and strategic decisions to ensure long-term success for the benefit of stakeholders. The company continued to invest in key product programs and launches, including EV programs and AV vehicle technology, full-size trucks, and key crossover programs. The company is likely to release its results for the third quarter on 5 November 2020. As per NYSE, the stock of GM is inclined towards its 52-weeks’ high levels of $38.95 but retains the potential for further growth. The stock of GM gave a return of 34.75% in the past three months and a return of 13.42% in the last one month. On a technical front, the stock of GM has a support level of ~$28.36 and a resistance level of ~$37.96. We have valued the stock using the price to cash flow multiple based illustrative relative valuation and have arrived at an upside of low double-digit (in % terms). For the said purposes, we have considered Ford Motor Co (NYSE: F), Honda Motor Co Ltd (NYSE: HMG), Fiat Chrysler Automobiles NV (NYSE: FCAU), etc., as peers. Considering the current trading levels, decent returns in the past three months, contract with US Army and decent financial performance amidst the market uncertainty, we recommend a ‘Hold’ rating on the stock at the closing price of $34.55, up by 0.06% on 2 November 2020.

GM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.