With global supply chain strains easing and technological advancements unfolding the automotive industry is exhaling a sigh of relief. However, not all companies stand to gain equally. Considering this, it could be judicious to wait for a more favorable entry point in Ford Motor Company (F).
Meanwhile, it seems prudent to steer clear of Tesla, Inc. (TSLA) owing to its bleak fundamentals. Before delving into the featured stocks, let’s first explore the current dynamics of the automotive sector.
Last year, the auto industry witnessed a resounding surge in vigor, with numerous companies achieving double-digit sales growth. Stability, once elusive in a sector marred by pandemic-induced turbulence, reemerged. S&P Global Mobility forecasted that global light vehicle sales for 2023 surged to nearly 86 million units, registering an 8.9% uptick from 2022.
The ongoing rebound in light vehicle production is facilitating inventory replenishment as both supply chains and demand continue to recover. This trend is being bolstered by enduring pent-up consumer demand across various regions. Global new light vehicle sales are anticipated to witness a 2.8% year-over-year increase this year.
Concurrently, the momentum toward electrification is intensifying, heralding the beginning of the electric vehicle revolution. Currently, four out of ten Americans are contemplating an EV for their next vehicle purchase. This is because anticipated advancements in battery technology offer the potential for enhanced EV range and efficiency.
Moreover, vehicles are evolving into sophisticated connectivity hubs, incorporating advanced infotainment systems, vehicle-to-vehicle communication, and seamless integration with smart devices as standard features. The focus on enhanced connectivity and Internet of Things (IoT) capabilities is further revolutionizing the driving experience.
In light of these trends, let’s look at the fundamentals of the two Auto & Vehicle Manufacturers stocks.
Stock to Hold:
Ford Motor Company (F)
Ford develops, delivers, and services a diverse lineup comprising Ford trucks, commercial vehicles, SUVs, and luxurious Lincoln models. It also facilitates vehicle financing and leasing through dealerships, offering retail installment sale contracts for both new and pre-owned vehicles.
On February 6, 2024, F’s CEO Kumar Galhotra expressed confidence in the company's ability to address quality and cost issues, anticipating full-year adjusted EBIT of $10 billion to $12 billion and adjusted free cash flow of $6 billion to $7 billion.
He said, “We’re seeing green shoots of quality improvement, including in our new-product launches – with several important ones coming up this year.” He added, “Across our global industrial system we’ve identified and will land $2 billion in cost reductions, in areas like material, freight and manufacturing – and we’re just getting started.”
In terms of forward non-GAAP P/E, F is trading at 6.53x, 58.7% lower than the industry average of 15.80x. Its forward EV/Sales of 0.97x is 21.9% lower than the industry average of $1.24x. However, the stock’s forward EV/EBITDA and forward EV/EBIT of 11.29x and 16.52x are 14.6% and 19.6% higher than the respective industry averages of 9.85x and 13.81x.
For the fiscal 2023 fourth quarter that ended December 31, 2023, F’s revenue increased 4.5% year-over-year to $46 billion. Its cash inflow from operating activities grew 108.3% from the year-ago value to $2.50 billion. However, adjusted net income and adjusted EPS decreased 43.8% and 43.1% from the prior year’s period to $1.16 billion and $0.29, respectively.
For the fiscal year ending December 2024, analysts expect the company’s revenue to increase 6.1% year-over-year to $176.01. However, the company’s EPS for the current year is estimated to decline 7.5% from the prior year to $1.86.
Shares of F have marginally plunged over the past five days. However, it has gained 6.6% over the past month to close the last trading session at $12.12.
F’s outlook is reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
F has a B grade for Value. However, it holds a C grade for Growth and a D for Momentum. It is ranked #34 out of 52 stocks within the Auto & Vehicle Manufacturers industry.
In addition to the POWR Ratings I’ve highlighted, you can see F’s Stability, Sentiment, and Quality ratings here.
Stock to Avoid:
Tesla, Inc. (TSLA)
Tesla designs, manufactures, and markets electric vehicles alongside energy generation and storage systems. Its Automotive division delivers electric vehicles and trades automotive regulatory credits, while the Energy Generation and Storage unit creates, installs, and leases solar energy and storage solutions.
In terms of forward non-GAAP P/E, TSLA is trading at 60.84x, 285% higher than the industry average of 15.80x. Its forward EV/Sales of 5.42x is 337.1% higher than the industry average of 1.24x. Moreover, the stock’s forward EV/EBITDA and forward EV/EBIT of 34.50x and 56.93x are 250.2% and 312.1% higher than the respective industry averages of 9.85x and 13.81x.
For the fiscal 2023 fourth quarter that ended December 31, 2023, TSLA’s income from operations decreased 47.1% year-over-year to $2.06 billion. Its adjusted EBITDA declined 26.9% from the year-ago value to $3.95 billion. Also, non-GAAP net income and non-GAAP EPS attributable to common stockholders declined 39.5% and 40.3% from the prior year’s period to $2.49 billion and $0.71, respectively.
The consensus EPS estimate of $0.68 for the fiscal 2024 first quarter ending March 2024 indicates a 20.5% year-over-year decrease. Similarly, the consensus EPS estimate of $0.76 for the next quarter (ending June 2024) exhibits a 16.8% year-over-year decline.
The stock has plummeted 15.3% over the past six months to close the last trading session at $197.41.
TSLA’s bleak fundamentals are apparent in its POWR Ratings. The stock has an overall rating of D, which equates to Sell in our proprietary rating system.
TSLA has an F grade for Value and a D for Growth and Momentum. It is ranked #39 out of 52 stocks within the same industry.
Click here to access additional TSLA ratings for Stability, Sentiment, and Quality.
What To Do Next?
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TSLA shares were trading at $195.54 per share on Friday morning, down $1.87 (-0.95%). Year-to-date, TSLA has declined -21.31%, versus a 7.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Is Now the Time to Invest in Tesla (TSLA) and Ford Motor (F)? StockNews.com
