Ford pays a beneficiant dividend yield whereas buying and selling at a modest P/E ratio.
The countdown has begun. In simply 5 days, on Monday, Might 5, Ford Motor Firm (F 1.80%) will report its Q1 2025 earnings, and try and repeat the earnings beat that archrival Basic Motors turned on this previous Tuesday. Can Ford do it?
Ford Q1 earnings
It should not be laborious. In accordance with analysts polled by Yahoo! Finance, Ford solely must earn a naked $0.02 per share to fulfill expectations subsequent week, a a lot decrease bar than the $0.49 per share the corporate earned a yr in the past. Ford may even admit to a ten% drop in income, and never miss its mark. Analysts solely count on the corporate to report gross sales of $35.8 billion.
When you think about that automotive rival GM reported each gross sales and earnings development, however everybody’s anticipating Ford to drop on each prime and backside traces, the brink for outperformance has been set, actually, actually low. Ford ought to be capable to “Evel Knievel” these forecasts with three wheels tied behind its again.
Why Ford may fail
That is to not say Ford can’t miss earnings. President Trump’s tariffs coverage — or policies I ought to say, since they appear to vary by the day — have injected a large quantity of uncertainty into the automotive market. Simply because the commerce struggle did not stop GM from beating expectations final quarter, it would not essentially imply Ford will emerge unscathed.
It is also potential that Ford may fumble a optimistic earnings report by issuing unhealthy steering, and maybe be overly cautious in predicting the earnings it’ll make in Q2, or later within the yr. That would scare traders away from the inventory regardless of how the earnings prove. Ford would not even essentially be flawed to take a cautious tone, both.
As Financial institution of America warned final week, uncertainty as to the medium-term impact of tariffs is “extraordinarily elevated,” and actually, nobody is aware of for sure how that is all going to play out.
Picture supply: Getty Photographs.
Buyers must give attention to the valuation at Ford
All this being stated, I am nonetheless assured that Ford inventory is a purchase forward of earnings — even missing any particular data as to what these earnings can be. How?
Take into account the inventory worth. Since President Trump launched his “reciprocal tariffs” commerce struggle final month, shares of Ford inventory have hardly budged in any respect. They entered the month of April at $10.03 per share. They exited the month buying and selling for $10.01. Contemplating all of the elevated uncertainty, and the automotive sector’s starring position within the tariffs debate, you’d count on the inventory to have carried out a lot worse if there was any “fluff” in any respect within the inventory’s valuation.
The truth that Ford inventory held mainly rock-steady tells me Ford inventory might be about as little as it will possibly go already, and there is actually nowhere to go from right here, however up.
Ford’s ultra-cheap valuation helps this principle. At the moment, the inventory trades for simply 7 occasions trailing earnings, a slight low cost to the earnings valuations on GM and Toyota for instance. The actually massive distinction between these three automotive shares, although, is that GM pays its shareholders a dividend yield of just one.3%, and Toyota Motor is not a lot better at 2.7%. In distinction, Ford inventory pays an amazing 7.4% annual dividend.
What’s extra, as a result of Ford must spend solely about 53% of its income on dividends to take care of its present payout (we name this the payout ratio), we all know that Ford can in truth keep its dividend simply.
Lengthy story brief, I do not understand how the tariffs struggle will play out. (And here is a secret for you: Neither do the specialists). What I do know is that regardless of how excessive tariffs go, and regardless of who has to pay them, persons are nonetheless going to wish to purchase automobiles and vehicles sooner or later, and Ford will proceed to promote them. The enterprise is strong, the dividend is strong, and neither one goes away it doesn’t matter what occurs with tariffs.
I believe Ford inventory proper now could be about as little as it’ll go. I firmly consider it is a “purchase” earlier than earnings.
Financial institution of America is an promoting accomplice of Motley Idiot Cash. Wealthy Smith has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Financial institution of America. The Motley Idiot recommends Basic Motors. The Motley Idiot has a disclosure coverage.
