Ford’s (NYSE:F) third-quarter results led to a significant overreaction in the market. The stock plummeted more than 12% following Ford’s withdrawal of its adjusted EBIT guidance for FY 2023 due to uncertainty surrounding the United Auto Workers’ tentative labor deal.
Key Takeaways:
- Short-term labor strike/agreements should not affect long-term investment decisions.
- Ford’s strong electric vehicle lineup and undervalued shares make it an attractive investment opportunity.
- The market’s overreaction presents a buying opportunity for investors.
Previous Rating and Insights
Previously, Ford was downgraded to a hold rating due to slowing electric vehicle adoption and larger-than-expected losses in the EV division. However, the company’s raised FY 2023 outlook showed potential. Ford’s upgrade to a strong buy rating reflects the market’s overreaction to short-term events.
Mixed Earnings and Growing EV Losses
Ford reported mixed earnings for Q3, falling short of revenue and EPS estimates. Growing losses in the EV segment and concerns surrounding Tesla’s Q3 earnings impacted the market sentiment for EV companies and legacy car brands like Ford and General Motors.
The Electric Vehicle Business and Future Prospects
Ford’s electric vehicle division reported significant losses in Q3, affecting its overall adjusted EBIT. Despite the losses, Ford’s long-term EV strategy aims for profitability by FY 2026 or FY 2027 through increased scale and delivery volumes.
Ford’s Tentative Labor Agreement and Guidance Withdrawal
Ford’s withdrawal of its FY 2023 EBIT guidance was a result of ongoing negotiations with the United Auto Workers union. The agreement would increase labor costs for Ford, but the company’s strong product line-up and ability to pass on costs to consumers support its long-term earnings prospects.
Ford’s Valuation and Investment Opportunity
Ford’s current valuation is attractive due to the recent market reaction. With a low P/E ratio and undervalued shares, Ford presents a buying opportunity for investors. As EV division losses narrow, Ford’s valuation could reach 10X forward earnings.
Risks and Final Thoughts
Potential risks for Ford include higher labor costs and a recession impacting consumer spending and wholesale volumes. Despite these risks, the market’s overreaction and Ford’s favorable risk profile make it an appealing investment at its current undervalued price.
