Stock Analysis & Ideas

Ford Stock: Volatile after Spinoff Plans Falter

Automaker Ford (F) was one of the first major automakers ever to exist. Therefore, looking to Ford as a general barometer of the auto industry makes some sense. The company recently revealed some of its plans for the electric vehicle market. The stock initially dipped but then recovered with the market. I’m bullish on Ford; as long as there’s a need for private transportation, Ford will likely be there in some capacity to fill it.

Ford’s last 12 months spent a lot of time flat but also featured some gains and losses. Early 2021 until mid-May saw Ford flat around $11 – $12 a share. A small jump into June pushed the company up to $15, and it held around the $13 – $15 range until mid-October.

That led to another upward jump going into November and a second spike as the year closed out, allowing the company to break the $25 per share mark for the first time in over five years. That last spike proved unsustainable, however, as the company retraced back to around $16, where it opened yesterday (it is now near $18).

Ford’s CEO, Jim Farley, announced that there would be no spinning off for any of Ford’s business lines. Neither electric nor gas-powered vehicles would spin off, Farley noted during a conference with Wolfe Research. Analysts have suggested such spinoffs for some time now, thanks to substantial valuations seen at companies like Tesla (TSLA).

Wall Street’s Take

Turning to Wall Street, Ford has a Moderate Buy consensus rating. That’s based on eight Buys, seven Holds, and two Sells assigned in the past three months. The average Ford price target of $23.44 implies 31.5% upside potential.

Analyst price targets range from a low of $13 per share to a high of $32 per share.

A Good Plan, Given the Conditions

Ford has taken a bit of a downturn on its plans to keep all its business lines in-house. However, there do seem to be solid reasons for doing so. Sure, it’s easy to look at the effort and suggest that greater focus on one branch or another might be worthwhile.

That’s especially the case given the huge valuations thrown Tesla’s way, among others in the field. Moreover, just a week ago, Farley was quoted as saying there was some “merit” to splitting the two businesses off.

Ford, however, is likely big enough to handle the mix. Ford recently announced that it, along with the Universal Technical Institute, would bring out a new program to help students work on electric vehicles. It’s part of UTI’s larger Ford Accelerated Credential Training (FACT) program.

The new curriculum will focus on several specific electric vehicle issues, including hybrid vehicle components and battery electric vehicle components.

In fact, some reports suggested that Ford might merely make electric vehicles their own “unit” within Ford proper. This seems like the most likely outcome. Ford has already been gearing up to move hefty volume on both vehicles and software sales coming up. Ford seems especially interested in focusing on economies of scale, using several common parts across a range of vehicles.

That’s a solid plan, especially given current conditions. Thousands of new model Ford Broncos are currently sitting in a parking lot waiting for the last chips to arrive. Dubbed “Ice Mountain,” it’s a demonstration of one of the biggest problems worldwide right now: the chip shortage.

Ford is likely interested in pursuing economies of scale with parts it can actually get its hands on. Additionally, with German electric vehicle owners about to get their own version of pain at the pump, electric vehicles may lose their luster. In Munich, the Stadtwerke Munchen utility noted that electricity prices might jump as much as 81%.

Ford’s dividend history suggests the company could use more ready cash on hand. Its dividend has been regular but has also been declining more recently. That’s not going to be endearing for income investors. Such investors need stability in dividends for budgeting but want growth to address issues of inflation.

Concluding Views

Ford keeping its internal combustion and electric vehicle lines together makes some sense. A break into separate business units would allow each unit better focus on its target. It’s clear electric vehicles will be part of Ford’s future going forward. Some measure of reality will interject in the proceedings. Munich is proof enough of that. However, there’s too much consumer interest for that not to be the case.

There are positive and negative points to a full spinoff. Ford seems interested in keeping everything as in-house as possible. Whether that strategy will pay off or not remains to be seen.

Regardless, Ford’s willingness to diversify into a clear consumer favorite will likely prove a positive development going forward. I’m bullish on Ford exactly for that reason. That and its long-lived industry presence, its history, and its proven ability to get us where we need to go.

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