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Home / Business / Ford is a trucking company with a truck-based dividend – Ford Motor Company (NYSE: F)

Ford is a trucking company with a truck-based dividend – Ford Motor Company (NYSE: F)



With all the talk of electric cars and Tesla (TSLA) always stealing the spotlight, it's easy to miss the fact that there are other car manufacturers offering compelling investment opportunities. The first battle scene in episode 3 of season 8 of Play of thrones showed the army of death mainly steam rolling over the good boy's defense. It is not what Tesla does with the other producers, except perhaps in the amount of media coverage it becomes.

The reality is that the automotive industry is becoming increasingly niche-focused, and there are other American companies that have a stronghold in their respective niches.

Here is an example. While total car sales have declined since 2013, sales of light trucks and medium and heavy trucks continue to climb.

The sector is what we believe will drive good investment opportunities, and in some cases these opportunities are of the income-generating variant.

Investment Mission

Ford Inc. (F) recently reported optimistic Q1 & # 39; earnings earnings April 25, 2019, and while it is difficult to predict whether the company can successfully restructure its business model or at least counterbalancing current headwinds, I believe that the strong market share in trucks gives stability and a competitive advantage over some of the other auto companies.

The stock recently stopped a yearly decline, and while I wish I could have jumped in earlier this year, I still don't think it's too late. Increased competitive pressure and overcapacity have led to a decline in the share price decline in the last quarter, particularly in the Passenger Cars segment. The company invests in new high potential product lines such as trucks or SUVs, as well as into future trends such as electric and autonomous vehicles. We expect it to contribute to higher revenues combined with improved EBIT margins driven by ongoing restructuring initiatives. The shares trade with a subsequent P / E ratio of 10.2x vs. 6.2x peer median with yield of 6.3%. Despite competition from General Motors (GM) in the truck category, the F-150 series has been touted as the best-selling truck for 41 straight years.

Transformation of Business

(Source: Investor Presentation, April 2019)

] Ford's core business consists of products such as the F-series truck, Transit, Explorer and Ranger that generate the majority of the company's EBIT, and management plans to invest additional capital and resources for the winning companies. However, the market has been concerned about how the company should handle lower results such as its sedan line and other passenger products.

I think these concerns are exaggerated. Ford has a very strong moat, cargo view with its F-series, less overseas competition in trucks and very loyal customers. While it is true that it faces challenges in the passenger car market, the segment is characterized by aggressive pricing and intensive capex to add consumer-driven features that other manufacturers are first to market. And customers are not as loyal in the car segment as they are in trucks.

One of the changes the company is making to reduce costs is one of a reversal of previous operational trends. Instead of manufacturing lines focusing on multiple vehicle types, Ford migrates to a product line focus, where employees are more invested in a particular product line.

(Source: Investor Presentation, April 2019)

Every team within the Ford firm is expected to understand every little detail of the underlying product and customers they serve. They usually keep the same product line across multiple product cycles, creating a better environment for continually developing new product lines that address current customers' demands or challenges.

]

(Source: Investor Presentation, April 2019)

With the automotive industry through rapid technological changes, the ability to to update the product portfolio quickly the same as maintaining or increasing market share.

Enlargement Plans or New Opportunities

(Source: Investor Presentation, April 2019)

The management sees a great opportunity in the rugged adventure, off-road segment, and has finally decided to compete from top to top with the Jeep. That is why the company puts a strong effort on the Bronco which is expected to enter the market in 2021, replacing outgoing Fusion and other similar products. The management is very optimistic about its strong impact on profitability – a $ 1 billion change in EBIT – even though the volume may be lower than that of existing products or direct peers.

Ok. And then, maybe thinking about Bronco in particular and for selfless reasons, really thinking about the profits here. We look at Wrangler, straight, direct competition, historically 150,000 units, right? Great profitability. We can argue that it is almost a third to a half of FCA's total profitability. They hit it up to 250,000. And then you have the Gladiator that starts. They have Toledo North and South. So there will be a 400,000 device program. So, what was a great program for Fiat Chrysler, which is a kind of niche product they are kind to take to a large volume race, that's a bit of the risk of maybe, at least in our opinion, fading pretty hard for them over

CEO Jim Hackett stated:

Source: Jim Baumbick, BofA Auto Summit

First quarter 2019 Results

(Source: Press release, April 2019)

CEO Jim Hackett stated: 19659025 ] With a solid plan in place, we promised 2019, would be a year of action and driving for Ford, and that was what we delivered in the first quarter. We are happy with the progress and optimism it brings. Our global team continues to restlessly improve our operational fitness, delight customers with ever-improving cars and services, and prepare Ford to win in the future. Our goal is still to become the world's most reliable company and design smart vehicles for a smart world. "

Source: Press Release, April 2019

(Source: Q1 Earnings Presentation, April 2019)

The company reported total Group revenue of $ 40.3 billion in Q1 & 39; down 3.8% Y / Y. However, the Company's Adjusted EBIT was 20% higher Y / Y, driven by positive seasonal factors and commercial success, and the management is very optimistic that it can achieve strong 2019 annual results compared to previous years, with Q1 EPS reporting $ 0.44. and beat analysts consensus estimate at $ 0.26. [Source: Press Release April 2010]

The strong performance of the North American truck and SUV business continues in first quarter 19, with the F Series continuing to maintain a leading position with 94,585 trucks compared to its closest competitor GM, the F series demand was driven by the latest technology, leading to an average transaction price of $ 47,454. The company sold 9,421 Ranger trucks in the first quarter of 19, adding to Ford's truck franchise and making it the best Q1 for pickup sales in 15 years. Ford SUVs reported record sales for a total of 193,753 cars in the quarter, or up 3.5% Y / Y, driven by the strong expedition line performance of a total of 21,773 vehicles, or 61.9%. Another high growth line is EcoSport, up 111.3% Y / Y, and the company expects no SUV supply-related issues in the next quarters. Ford commercial line performs very well, with reported sales of over 50,000 vans and the new Transit Connect line totaling 8,940, or up 34,9% y / y.

The passenger transport business has deteriorated in recent quarters, and the company reported a total car sales of 98,265, or down -23% Y / Y. From flagship economy car products, only the Ford Fiesta line has been good, a total of 15,943 cars, or up 29, 6% Y / Y, while Focus, C-Max and even Mustang have been in double digit decline Y / Y.

(Source: Press Release, April 2019)

During Q1 & 39; 19 was about 50% of European sales from commercial vehicles and SUVs. The management expects continued growth in both segments in Europe, driven by the launch of new commercial vehicles such as Transit Custom PHEV and SUV. In terms of commercial vehicles, the most efficient Ford Transit model was up 11.8% Y / Y, and Ranger, up 15.6% Y / Y. Both the Passenger Car sales and market share were down steeply in Q1 , offset by the Ford Focus line's strong performance of 66,900 units, or up by 11.7% y / y. Management expects a continued positive trend for the Focus line, with Wagon and Active derivatives boosting European sales and Focus ST line to enter the European market later in 2019. Overall, reported US / European sales figures show a higher truck and SUV product mix

( Source: Q1 & 19; 19 Revenue List, April 2019))

Management expects to maintain a strong balance sheet and investment grade rating, driven by robust operating profit in 2019. The company reported $ 24.2 billion in cash against a $ 20 billion target and $ 35.2 billion in liquidity against a goal of $ 30 billion. The management is doing its utmost to increase liquidity and financial flexibility with an additional $ 3.5 billion in additional credit facility and expand the corporate revolver at $ 13.4 billion at the end of April 2019.

Valuation

The consensus estimate for FY19 and FY20 is a total turnover of $ 145.5 billion and $ 146.3 billion, respectively. Stocks are now trading in a forward P / E majority of 7.34x.

We believe that the market has discounted the current share price over the high uncertainty about how the company will handle the restructuring plan and especially with the slowdown of the core car. Unwanted FX and tariff-related effects, combined with intensified competitive pressure in the global automotive industry, put further pressure on the stock. That recently triggered a 15% drop in the share price, with a bottom price of $ 7.50 at the end of December 2018 coupled with a higher number of analyst downgrades over the past year.

The stock is currently trading between analyst price targets just around the consensus estimate. With a payout of 6%, I don't mind waiting to see how this plays out.

My Take

This is the automotive industry, and despite the fact that it is a staple of the US economy for decades going through a significant worldly change that honestly I do not think anyone can predict. From millennia, less to self-driving cars, the trend seems to point to fewer cars being owned, although the same number of cars are on the way.

There are also several short-term hazards around trade war, commodity prices, and changes in consumer tastes, not to mention aggressive pricing on particular vehicle types.

Ford has a highlight on the truck segment and loyal customers, it can be a matter of time before even the Ford dieshards start turning in the keys of a Uber (UBER) app. However, it is a long way away and I will be happy with collecting dividends until that day comes. If you are excited about Tesla and can handle the founder and stock volatility, this stock may be too boring for you. But if you are looking for a profitable dividend from an iconic American brand, you might want to look into Ford. We like the dividend of 5.8% and think there is a good chance that it could increase 15% over the next year or two.

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Enlightenment: I am / we are tall F. I wrote this article myself, and it expresses my own opinions. I do not receive compensation for it (other than from Seeking Alpha).

Additional Information: This article is intended to identify an idea for further research and analysis and should not be taken as a recommendation to invest. It does not provide individual advice or recommendations to any particular reader. Also note that we cannot cover all relevant risks related to the ideas presented in this article. Readers should conduct their own due diligence and carefully consider their own investment goals, risk tolerance, time horizon, tax situation, liquidity needs and concentration levels, or contact their advisor to determine if any ideas presented here are appropriate to their unique circumstances. Furthermore, none of the ideas presented here are necessarily related to NFG Wealth Advisors or a portfolio managed by NFG.


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