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F – Although management’s concerns about the chip shortages, growth, and business transformation suggest the potential for near-term headwinds, longer-term equity upside remains warranted

June 8, 2021

  • Ford Motor Company (F:USA) currently trades near historical highs relative to UAFRS-based (Uniform) earnings, with a 23.4x Uniform P/E, implying bullish expectations for the firm. Although management’s concerns about chip shortages, growth investments, and business transformation suggest the potential for near-term headwinds, market expectations are still too bearish, and longer-term equity upside remains warranted
  • Specifically, management may lack confidence in their ability to continue investing in growth, shift Ford away from a traditional OEM, and sustain structural cost reductions. In addition, they may have concerns about supply chain collaborations with the government, the negative cash flow and EBIT impact of lost volumes, and the performance of Ranger and its derivatives in international markets. Furthermore, management may lack confidence in their ability to reduce dealer incentives, and they may be exaggerating the flexibility of their balance sheet and the potential of their leaner inventory initiatives
  • Although management’s concerns about chip shortages, growth investments, and their business transformation suggest the potential for near-term headwinds, market expectations are still too bearish given the firm’s EV initiatives and strong brand, and longer-term equity upside remains warranted