Ford to Gain From Product Development Despite Frequent Recalls

Zacks Equity Research

On Mar 15, we issued an updated research report on Ford Motor Company F.

This U.S. automaker is focusing on product development to offer customer-focused products while keeping a check on costs and capital efficiency. With a strategy to cut costs and improve market share in not so profitable markets, Ford is partnering with Volkswagen AG for commercial vans and pickups, and explore electric and autonomous technological developments.

Apart from technical developments for gasoline vehicles, the company is working on autonomous and electric cars. For self-driving vehicles, Ford will invest $4 billion by 2023. It expects to commercially deploy the autonomous vehicle business by 2021. Further, it plans to launch 40 electric vehicles by 2022, which will consist of 16 fully-electric vehicles and the rest will be plug-in hybrids.

Ford Motor Company Price and Consensus


Ford Motor Company Price and Consensus | Ford Motor Company Quote

Rising demand for spacious and comfortable SUVs, trucks, and vans increased Ford’s SUV and trucks sales. In 2018, its major sales driver was the F-Series truck range, which achieved the set target of selling 1 million vehicles globally. Among the new launches that partly contributed to the company’s growth in the market were Expedition, Edge and Navigator. Robust F-series sales along with favorable product mix and market factors aided the automaker’s North America operations to generate an EBIT of $2 billion in fourth-quarter 2018.

However, soaring commodity prices and currency fluctuations hampered Ford’s performance in fourth-quarter 2018. Further, softening demand in China and declining market share in Europe affected performance in 2018. In fourth-quarter 2018, the company generated automotive revenues of $38.7 billion while adjusted earnings per share were 30 cents. The figures missed their respective Zacks Consensus Estimate.

Further, frequent vehicle recall due to safety issues is another concern for Ford. Recalls not only elevate the company’s expenses but also reduce consumers’ confidence in a brand. Last month, it issued a recall for roughly 1.5 million Ford and Lincoln vehicles, owing to flawed downshift to first gear. In January 2019, it issued two recalls for roughly 1 million vehicles worldwide.

Over the past three months, shares of Ford have outperformed the industry it belongs to. Shares of the company have gained 1.3% compared with its industry’s growth of 0.2% during that period.


Zacks Rank & Stocks to Consider

Ford currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader auto sector are Ferrari N.V. RACE, Oshkosh Corporation OSK and PACCAR Inc. PCAR.  Ferrari currently sports a Zacks Rank #1 (Strong Buy) while Oshkosh and PACCAR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ferrari has an expected long-term growth rate of 18.5%. Over the past three months, shares of the company have gained 28.7%.

Oshkosh has an expected long-term growth rate of 11.3%. Shares of the company have gained 21.3% over the past three months.

PACCAR has an expected long-term growth rate of 10.8%. Shares of the company have gained 23.2% over the past three months.

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