Insights

Why Ford Stock Could Buck Market Sell-Off After April Fall

What happened
Ford (NYSE: F) stock tumbled 16.3% in April, according to data provided by S&P Global Market Intelligence. That’s nearly twice as bad as the S&P 500’s decline last month. There were some worrisome developments in the period, but if you look beyond the headlines and the latest updates from the company, the worst now seems to be baked into the auto stock’s price.
So what
Ford shares crashed the very first week of April after the auto giant suspended production at a Michigan plant because of a shortage of semiconductor chips. Days later, the company announced a 25.6% drop in its total vehicles sales for March, including a 34.4% drop in truck sales, again citing chip supply constraints as the primary reason.
On top of the chip shortage, rising coronavirus cases in China and the ensuing lockdowns emerged as a fresh threat to Ford’s growth. Combined, the two factors sent the company’s sales in China dipping 18.8% year over year in the first quarter of this year.
Image source: Ford.

Those numbers made investors even more skeptical as Ford’s quarterly earnings were just around the corner. Market sentiment in the run-up to Ford’s earnings turned negative, and the stock continued to fall as several analysts also downgraded their price targets on Ford’s stock. That included Deutsche Bank analyst Emmanuel Rosner, who cut the stock’s price target to $17 a share from $21 per share in anticipation of a tough 2022 driven by rising input costs and uncertainty amid the Russia-Ukraine war.
On April 27, Ford stunned the market with a massive loss for its first quarter.
Ford’s Q1 revenue of $34.5 billion comfortably beat analysts’ estimates, but the automaker suffered a steep net loss of $3.1 billion. Blame electric vehicle (EV) start-up Rivian Automotive (NASDAQ: RIVN). The value of Ford’s stake in Rivian eroded in the first quarter as Rivian shares tanked, and Ford had to book a mark-to-market loss of $5.4 billion on its Rivian investment. Ford owned roughly 102 million shares in Rivian as of last count. 
But if the latest update from CNBC is anything to go by, Ford is already doing what was expected — selling Rivian shares to cut potential future losses.
Now what
This past weekend, CNBC reported Ford as planning to sell 8 million shares in Rivian today as its 180-day initial public offering (IPO) lockup period in Rivian expired on May 9. While this would be a discount sale that Ford will have to book a loss on, that’s pretty much all that’s bad here. The company is focused on the things that matter. 
On April 26, Ford began full production of its F-150 Lightning, the all-electric version of its uberpopular F-150 pickup truck. Demand exceeded Ford’s own expectations as it booked 200,000 reservations for the pickup, and Ford confirmed it’s expanding production at its Rouge electric vehicle center to 150,000 units annually by 2023. The company expects EVs to make up one-third of its global vehicle volumes by 2026 and 50% by 2030.
Ford’s EV sales, in fact, are rocketing. They jumped 139% year over year in the month of April on the back of strong Mustang Mach-E and E-Transit sales. It was the best month ever for Mustang Mach-E since launch, with sales jumping 95% year over year. What’s also notable is that April was a much stronger month for Ford, with its truck sales rising 7.2% sequentially on record Maverick monthly sales.
Long story short, Ford’s traditional and electric vehicles are selling out fast despite the chip shortage, and with the company also reiterating its full-year guidance for adjusted earnings before interest and taxes of 20% growth at the midpoint, I see more upside than downside in Ford stock from here.
Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

What happened

Ford (NYSE: F) stock tumbled 16.3% in April, according to data provided by S&P Global Market Intelligence. That’s nearly twice as bad as the S&P 500‘s decline last month. There were some worrisome developments in the period, but if you look beyond the headlines and the latest updates from the company, the worst now seems to be baked into the auto stock‘s price.

So what

Ford shares crashed the very first week of April after the auto giant suspended production at a Michigan plant because of a shortage of semiconductor chips. Days later, the company announced a 25.6% drop in its total vehicles sales for March, including a 34.4% drop in truck sales, again citing chip supply constraints as the primary reason.

On top of the chip shortage, rising coronavirus cases in China and the ensuing lockdowns emerged as a fresh threat to Ford’s growth. Combined, the two factors sent the company’s sales in China dipping 18.8% year over year in the first quarter of this year.

Image source: Ford.

Those numbers made investors even more skeptical as Ford’s quarterly earnings were just around the corner. Market sentiment in the run-up to Ford’s earnings turned negative, and the stock continued to fall as several analysts also downgraded their price targets on Ford’s stock. That included Deutsche Bank analyst Emmanuel Rosner, who cut the stock’s price target to $17 a share from $21 per share in anticipation of a tough 2022 driven by rising input costs and uncertainty amid the Russia-Ukraine war.

On April 27, Ford stunned the market with a massive loss for its first quarter.

Ford’s Q1 revenue of $34.5 billion comfortably beat analysts’ estimates, but the automaker suffered a steep net loss of $3.1 billion. Blame electric vehicle (EV) start-up Rivian Automotive (NASDAQ: RIVN). The value of Ford’s stake in Rivian eroded in the first quarter as Rivian shares tanked, and Ford had to book a mark-to-market loss of $5.4 billion on its Rivian investment. Ford owned roughly 102 million shares in Rivian as of last count. 

But if the latest update from CNBC is anything to go by, Ford is already doing what was expected — selling Rivian shares to cut potential future losses.

Now what

This past weekend, CNBC reported Ford as planning to sell 8 million shares in Rivian today as its 180-day initial public offering (IPO) lockup period in Rivian expired on May 9. While this would be a discount sale that Ford will have to book a loss on, that’s pretty much all that’s bad here. The company is focused on the things that matter. 

On April 26, Ford began full production of its F-150 Lightning, the all-electric version of its uberpopular F-150 pickup truck. Demand exceeded Ford’s own expectations as it booked 200,000 reservations for the pickup, and Ford confirmed it’s expanding production at its Rouge electric vehicle center to 150,000 units annually by 2023. The company expects EVs to make up one-third of its global vehicle volumes by 2026 and 50% by 2030.

Ford’s EV sales, in fact, are rocketing. They jumped 139% year over year in the month of April on the back of strong Mustang Mach-E and E-Transit sales. It was the best month ever for Mustang Mach-E since launch, with sales jumping 95% year over year. What’s also notable is that April was a much stronger month for Ford, with its truck sales rising 7.2% sequentially on record Maverick monthly sales.

Long story short, Ford’s traditional and electric vehicles are selling out fast despite the chip shortage, and with the company also reiterating its full-year guidance for adjusted earnings before interest and taxes of 20% growth at the midpoint, I see more upside than downside in Ford stock from here.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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