TLDR: Ford is fundamentally worth > 3x current price on sum of the parts basis with very juicy catalysts coming up… F-150 Lightning Launch (any day now), Rivian lockup expire (May 10th), Argo AI IPO (this summer), Investment grade credit rating (soon), Family insiders continuing to PLOW into the stock at HIGHER PRICES!!!(https://www.barrons.com/articles/ford-stock-buys-51648502222)
SUM OF THE PARTS > $50++++
I am long Jan ’23 $20 (currently $0.92), $25 ($0.37), and $30 ($0.16) calls and I am extremely bullish on the value here. The stock has fallen from ~$26 to sub-$15 in the span of ~3 months on overblown recession fears (indiscriminate dumping of consumer cyclicals), commodity/raw material spikes (further induced by Russia/Ukraine), and inflation. At $60B market cap, you can buy Ford today for ~5x forward EPS (~$2.25) ex: net cash, RIVN, and Argo AI – which will get monetized when RIVN’s lockup expires in early May, and when Argo AI IPO’s sometime this summer.
Ford’s Auto business will do ~$11B of EBIT this year, and profit is currently being dragged down by ~$1.5B of lost volume in the first half of the year due to supply chain disruptions which will normalize in the back half of the year as tier 1 chip supply out of Japan comes back online in 2Q/3Q (https://www.reuters.com/business/autos-transportation/automakers-chip-firms-differ-when-semiconductor-shortage-will-abate-2022-02-04/)
The auto biz is also being dragged down by ~1.5B of higher commodities (higher nickel, aluminum, palladium, and steel prices) which I believe will soon normalize as geopolitical tensions ease. Further, the auto biz is being dragged down by ~$1B of “inflationary pressures” on materials and freight which I also believe will soon normalize with inflation peaking. Importantly, and a reason why the company is separating the ICE/EV biz next year, is the auto biz is being dragged down by ~$1.5B of start-up costs from their EV biz being sub-scale which will normalize once volumes pickup later this year and into next year as the F-150 Lightning launches later this month. In total, I believe Ford’s legacy auto biz is severely under-earning and should be doing close to ~$17B of normalized EBIT at a conservative 8x mid-cycle multiple is $136B of value.
Next, Ford Credit is their financing arm that if it were a standalone bank would be the 20th largest bank in the country by asset size. Auto financing peer – Ally Financial – trades for ~1.5x BV and ~6x EPS – which is Ford Credit’s closest peer. Valuing Ford Credit at 1.2x book equity is ~15B of value and works out to about 5x EBIT.
Next, Ford has about $6B of NET CASH on the books as of 12/31 – this excludes its stake in Rivian.
Ford owns ~103M shares of RIVN, which at its current value of $40 works out to about $4B of value for Ford that will get monetized when the lockup expires May 10th.
They also own 41% stake in Argo AI – a private company – that received a valuation of 7.5B in its June 2021 funding round. At that mark, Ford’s stake is worth about $3B.
They also own 32% of a publicly traded Chinese car mfg – JMC – and 7% stake in publicly traded battery company – SLDP.
Lastly, there is about $1.2B of corporate overhead capitalized at 8x is about a $9B reduction in value.
Add everything up and you get ~$35/share of value for Ford’s business – EXCLUDING the value of their EV business.
What could their EV biz be worth? for rough math, they are planning to do 600k units in 2023 split between Mach-E (250k sold out reservations), F-150 Lightning (150k sold out reservations), and E-transit (200k sold out reservations). The blended MSRP works out to $44k per unit, equivalent to $26B in EV sales. Capitalizing this revenue opportunity at 5x (start-up EV’s in RIVN trades at 6x and LCID trades at 11x revenue despite not having capacity and infrastructure built yet to support the level of scale Ford has) and discounting at 25% over two years equates to ~$21 of “theoretical” value for the EV call option.
In total, I think Ford could be worth well over $50+ in the near term as the market better appreciates a) normalized earnings power at Ford’s ICE biz, b) liquid stakes in pubic and private companies get monetized, and c) EV’s continue to ramp with the F-150 lightning launching any day now.
Submitted April 07, 2022 at 09:10PM by Zerosumgame33
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