If you are already a shareholder of Ford Motor Company (NYSE: F), the last few trading sessions would have made you smile. After dropping over 54% between January 22 to July 13 this year, the stock has been making a solid recovery. Since July 13, Ford stock has gained almost 40%. If media reports are to be believed, the stock will continue to rise.
Ford is a multinational automaker with headquarters in Michigan that sells cars and trucks across the globe. Ford Motor operates through three divisions: Ford Credit, Mobility, and Automotive. The company's Mobility section designs and develops mobility services, while the Automotive business sells vehicles. The Ford Credit business engages in lending and leasing activities for automobiles to and via auto dealers.
So what changed for Ford in the last month?
Ford is generating stellar revenue
Ford released its second-quarter earnings recently, and the market was quite impressed by its performance. Ford’s revenue for the quarter had surpassed $40 billion, and it was the first time this happened since 2019. Also, its adjusted operating margin reached 9.3% beating market estimates handsomely.
The company stated it benefitted from the favorable timing of shipments which is a far cry from Q2 of 2021, when a severe semiconductor shortage dented Ford’s revenue and profitability..
For Q2, Ford’s wholesale volume surged 89%, from around 327,000 units to 618,000 units. As a result of this volume recovery, revenue in this business almost doubled to $29.1 billion. The operating margin of the segment increased by 10 percentage points to 11.3%, enabling Ford to record a $3.3 billion quarterly adjusted operating profit for the North American region, which is significantly higher than the $200 million generated a year ago.
Again, the company could also more than triple its global adjusted operating profit to $3.7 billion due to this sharp rebound. Clearly, its efforts to sustainably improve its profitability levels have paid off.
Ford has a long way to go
Ford’s second-quarter earnings were impressive, and it just might be the beginning of a multi-year turnaround. However, it is still struggling to break out in two of the largest overseas markets, i.e., Europe and China.
As per the full-year guidance provided by the company, it expects its adjusted operating profit to be around $6 billion in the second half of the year, i.e., an average of $3 billion per quarter.
Ford is experimenting with its cash flows in the electric vehicle (EV) segment. EV makers traditionally tend to burn cash at a rapid pace due to the capital-intensive nature of the business. Ford has gone with a different strategy of tying down subscription and services revenue to smart, connected electric vehicles. It is also bringing in cheaper China-made LFP batteries to North America for the first time by 2023. This might provide the company with an edge over its competitors.
Moreover, the cost-cutting strategies, as well as the strategic decision to discontinue most of its sedans and hatchbacks in the North American region, have already helped it in turning around its operations to a large extent.
Ford is trading only around seven times its forward earnings and has got a massive upside potential coming in. Ford closed trading at $15, and the consensus target price for the stock is $18.36, a potential upside of around 21%. The stock is a suitable buy for investors who believe in the long-term potential of the company.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.