Ford Motor Company (NYSE: F) reported earnings February 4th, 2021 for Q4 2020 and full year 2020. The sentiment is finally turning positive as the company beat bottom line earnings expectations. Ford posted an adjusted EPS of $0.34 vs. expectations of a -$0.07 loss. In terms of revenue, Ford fell short by $690M, with a total revenue for the quarter of $33.2B. Despite falling short with revenue, Adj. FCF was $1.9B, up $1.4B from the prior year as Ford Europe delivered its strongest quarterly profit in over four years.
For many of those who watch CNBC to get a glimpse of what is going on in the business world, Jim Cramer and a majority of hosts are starting to turn positive about Ford.
Now I am not saying that CNBC controls where you should invest, but when you have such a dramatic reversal from 100% negative to a majority positive, it is worth a deeper dive into what Ford is doing to change opinions.
If there is substance behind a real change, as an investor, we might be able to take advantage of the media sentiment turning positive. Let’s review a few points to make the case.
Point 1: Turn Around Plan is Working
Back in 2017 under the leadership of Jim Hackett, the company announced a fitness plan to rebalance Ford’s business and take a more focused approach on profitable vehicles. Ford found that vehicle lines accounting for 60% of their revenue, generated 150% of their EBIT, which was not a sustainable path forward.
Now under the leadership of Jim Farley, some of those prior rebalance actions are starting to show. Since 2018, Ford has closed 10 manufacturing sites across the globe. The company discontinued products like the Ford Focus & Fiesta. Ford spent a whopping ~$11B of EBIT to focus on areas of strength and was able improve Europe cost structure by $1.1B, as one example.
The turnaround plan has taken a long time, but was necessary for Ford to position itself for the future. Competitors like Tesla have changed the automotive industry for good.
Point 2: New Vehicle Launches
Ford successfully launched three vehicles in Q4 2020 that support Ford’s rebalance and new direction. The Mustang Mach-E, a new F-150 facelift, and the Bronco sport. All SUV’s. All three hit November & December of 2020, so we have not seen the full effect of these products yet.
Our first all-electric Mustang Mach-E [launched], which we and more importantly, others believe is the first credible mass market competitor to Tesla.CEO, Jim Farley
Moving forward, the Bronco nameplate is coming in Spring 2021 after 25 years. The brand new Bronco is a vehicle targeting the Jeep Wrangler market share and in terms of technology, is a complete step ahead. I expect solid sales for the Bronco to support Ford’s bottom line. Ford also will launch the third generation F-150 Raptor in summer 2021.
Point 3: Ford’s “Electrification Revolution”
Ford announced the company will invest at least $22B in electrification through 2025. This is big money. EV’s are a new major theme of the “roaring 2020’s” market. Stock appreciation examples in the EV category can be seen from companies like Tesla and NIO. Any company that has an electric battery or electric vehicle focus has a lot of interest, which present opportunities for stock upside.
To support the massive bill for electrification, the company has increased its liquidity to $46.9B in Q4. Ford has a cash balance of $30.8B. As I mentioned earlier, the rebalance of the business is poised to create additional cashflow for the company to support the investment in this area.
On deck in the coming years will be a battery electric F-150 and E-Transit. I expect the E-transit to continue to be a major player in the commercial vehicle space. You already see these vehicles being used for amazon delivery trucks all over the place. With the world steadily increasing e-commerce sales and wanting more deliveries to your door, what a perfect vehicle to use.
Ford’s Positive Sentiment Shift
All three of these points have been contributing to a positive shift in sentiment for Ford. The company needed to make drastic changes and has done so. Now for once, Ford Motor Company is being recognized for it and is finally able to look attractive in the eyes of the media.
Only a couple of years ago, Ford was a company most media analysts wanted you to stay away from. Now, with real numbers to back up the media attention, it could be a catalyst for stock price appreciation. With GM quarter results coming up this week, keep your eye on the auto industry as a whole. If GM has a blowout quarter, I would expect Ford will even gain more momentum as well.
At the time of publication, the author of this article holds shares of Ford.