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While last week was the busiest of this earnings season, we have a flurry of earnings this week, as well. PayPal (PYPL), Walt Disney (DIS), and Ford Motor Company (F), all of which have been underperforming the markets for quite some time now, are just a few of the major names set to release their quarterly reports this week.
Ford stock underperformed the markets in 2023, even as it rebounded from last year’s low. The United Auto Workers (UAW) strike, the long-term earnings impact from the new worker compensation, the slowdown in electric vehicle (EV) sales and the accompanying price war, a broader macroeconomic slowdown, and higher interest rates were all among the reasons that Ford - along with rival General Motors (GM) - fell out of favor with investors in 2023.
Both F and GM Shares Underperformed in 2023
Cut to 2024, and not much has changed - even as interest rates are still widely expected to fall this year, after Fed Chair Jerome Powell last night backed the Fed’s December dot plot outlook suggesting 75 cumulative basis points in rate cuts this year.
However, General Motors shares spiked last week after the company impressed markets with its Q4 earnings. Can Ford repeat GM's success when it reports its own Q4 earnings after the bell tomorrow?
Here’s what to expect from the Detroit auto giant’s earnings report, and whether the stock is a good buy ahead of the earnings report.
Ford Q4 Earnings Preview
Analysts expect Ford to report revenues of $41.38 billion in Q4, a YoY fall of just under 1%. The automaker's earnings per share (EPS) is expected to fall by a whopping 74% to $0.13.
The steep fall in earnings shouldn’t be surprising, given the impact of the UAW strike during the quarter. For reference, GM’s operating income also fell by over half in Q4, even as the company’s EPS rose YoY, due to a favorable base in the corresponding quarter last year.
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The UAW strike created major negative overhang for automakers, and Ford even withdrew its 2023 guidance due to the uncertainty. The company eventually reinstated its outlook, and forecast adjusted pre-tax profit between $10 billion to $10.5 billion – lower than the previous guidance of $11 billion to $12 billion.
What to Watch in Ford’s Q4 Earnings Report
Apart from the headline numbers, I will be watching for several other metrics when Ford reports its Q4 earnings. First, the company’s 2024 guidance will be crucial. Importantly, I will be looking for guidance on the losses in the EV business, as well as any commentary on the long-term profitability of that segment, which the company rechristened Ford Model e. General Motors, incidentally, impressed markets with its guidance, as it implies a YoY rise in earnings with the upper end of EPS guidance at $9.50.
I will also watch for commentary on the product mix, as during the previous earnings call Ford said that the company would focus on hybrids amid slowing EV sales. Hybrid demand has been quite good, as the product appeals to that set of buyers who are wary of battery electric cars due to reasons ranging from high initial buying price to range anxiety.
Automakers Reconsider Their EV Strategy
In early 2021, General Motors became the first Detroit automaker to set a deadline for internal combustion engine (ICE) vehicles, and said that it won’t sell gas-powered cars after 2035. Notably, GM recently changed its strategy, and will now also add plug-in hybrid electric vehicles to its “all-electric dream.”
I will also be listening for comments on capital allocation. Ford has already said that it will go slow with its EV investments, which could provide the company with a lot of legroom to boost shareholder returns through either a dividend hike, a special dividend, or a share buyback – just as GM did last year, with a record $10 billion buyback.
What's the Ford Stock Forecast Ahead of Q4 Earnings?
Morgan Stanley analyst Adam Jonas - perhaps better known as one of Wall Street's biggest Tesla (TSLA) bulls - is quite bullish on Ford stock heading into the Q4 report, and named it a “top pick” among U.S. automakers. The brokerage has a base case $15 target price on Ford, while the bull case target price is $21.
The consensus view of Ford is not as bullish as Jonas’, though, and the stock has a consensus rating of “Hold” from analysts. Of the 17 analysts covering the stock, five rate it as a “Strong Buy” and 2 as a “Moderate Buy.” Seven analysts rate the shares a “Hold,” while the remaining 3 have a “Strong Sell” rating.
Ford’s mean target price of $13.52 is 11.3% higher than last Friday's close.
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Does Ford Stock Look Like a Good Buy?
I believe Ford could surprise to the upside with its 2024 guidance, as a focus on cost cuts and an expected narrowing of EV losses could help support the company’s profits in 2024.
Ford stock has tested investors’ patience for the last several years; however, given its tepid valuations (next 12-month price-to-earnings multiple of 8.4x) and a dividend yield of around 5%, I find F stock a good value buy.
On the date of publication, Mohit Oberoi had a position in: F , GM , PYPL , DIS . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.