Consumer demand for electric vehicles (EVs) is rising consistently. Moreover, as part of the $1 trillion infrastructure law approved in November 2021, President Joe Biden approved $900 million in funding to construct EV charging stations in 35 states.
The president also wants 50% of all new vehicles sold to be electric or plug-in hybrid electric models by 2030 and 500,000 new EV charging stations. Therefore, the prominent EV players should benefit.
EV behemoth Tesla, Inc. (TSLA) has seen its share price slumping 12.3% year-to-date, with all major indexes posting losses over this period due to the macroeconomic and geopolitical headwinds. Despite the decline, the stock trades at a premium valuation, which hardly justifies its growth prospects.
TSLA’s forward Price/Sales multiple of 11.36x is 1217.2% higher than the industry average of 0.86x. Also, in terms of its forward Price/Book, the stock is trading at 22.85x, 821.7% higher than the industry average of 2.48x.
On the other hand, Ford Motor Company (F), which has been expanding its exposure to EVs, has been making several positive developments lately and appears better positioned to capitalize on the EV industry’s growth.
The company recently announced electric versions of some of its most popular internal combustion engine models, including the Ford Mustang Mach-E and the F-150 Lightning pickup truck.
Furthermore, this month, F introduced the E-Transit Custom, an electric version of its best-selling delivery van in Europe. The move is part of the automaker's effort to phase out traditional engine vehicles in Europe by 2035.
The stock has gained 32.9% over the past three months and 10.2% over the past year to close its last trading session at $14.93.
Given its capacity to capitalize on the industry tailwinds more effectively and weather the challenges better, we believe F is a better investment than TSLA.
Here's what could shape F's performance in the near term:
Robust Financials
During the second quarter ended June 30, 2022, F's revenue increased 50.2% year-over-year to $40.19 billion. Its operating income came in at $2.86 billion, compared to an operating loss of $22 million in the prior-year quarter. The company’s net income grew 18.9% from the year-ago value to $667 million, while its EPS amounted to $0.14.
Impressive Growth Prospects
Street expects F's revenues and EPS to rise 15.9% and 30.8% year-over-year to $146.18 billion and $2.08, respectively, in fiscal 2022. In addition, F's EPS is expected to rise at a 13.6% CAGR over the next five years.
Moreover, the company has an impressive earnings surprise history, as it topped Street EPS estimates in three of the trailing four quarters.
Discounted Valuation
In terms of Price/Sales, the stock is currently trading at 0.41x, 52.6% lower than the industry average of 0.86x. Also, its forward Price/Cash Flow of 5.43x is 49.4% lower than the industry average of 10.74x. Moreover, F's trailing-12-month Price/Book of 1.29x is 48.2% lower than the industry average of 2.48x.
Consensus Rating and Price Target Indicate Potential Upside
Of the 14 Wall Street analysts that rated F, four rated it Buy, and nine rated it Hold. The 12-month median price target of $15.96 indicates a 6.9% potential upside. The price targets range from a low of $10.00 to a high of $28.00.
POWR Ratings Reflect Solid Prospects
F has an overall grade of B, equating to a Buy rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. F has a B grade for Sentiment and Value. Analysts’ solid earnings and revenue growth estimates are consistent with the Sentiment grade. In addition, the company's lower-than-industry valuation multiples are in sync with the Value grade.
Of the 65 stocks in the D-rated Auto & Vehicle Manufacturers industry, F is ranked #20.
Beyond what I stated above, we have graded F for Growth, Stability, Quality, and Momentum. Get all F ratings here.
Bottom Line
With a strong product pipeline, F is well-positioned to take the lead in the EV market over the long term. In addition, given analysts’ optimism over its upside potential, discounted valuation, and robust profitability, the stock could perform better than TSLA.
How Does Ford Motor Company (F) Stack Up Against its Peers?
F has an overall POWR Rating of B, which equates to a Buy rating. Check out this other stock within the same industry with A (Strong Buy) ratings: Stellantis N.V. (STLA), Volkswagen AG (VWAGY), and Subaru Corporation (FUJHY).
F shares fell $0.70 (-4.69%) in premarket trading Tuesday. Year-to-date, F has declined -29.99%, versus a -18.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.
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