It’s Time to Take Ford Out to the Junkyard
The deck appears to be stacked against F stock right now
When you think about it, it’s really sad what’s become of Ford Motor (NYSE:F). The once-proud U.S. automaker is going through a tough stretch, and there seems to be no bottom in sight for F stock.
Henry Ford, the legendary founder of Ford, is surely spinning in his grave. The company that was the dominant automaker of the 20th century has become just an afterthought in the 21st, eclipsed by flashy newcomers like Tesla (NASDAQ:TSLA).
Two months ago, I checked in on F stock and at that point I told my readers that things were just getting worse for the company. And unfortunately for those shareholders hanging on, I was proven to be right.
Ford Stock at a Glance
Ford had a mixed earnings report when it posted its first-quarter numbers on April 28, but even that minor victory wasn’t enough to keep F stock from tumbling again. The company managed to eke out a win on revenue, reporting $34.3 billion when analysts expected $32.5 billion.
However, already meager earnings per share estimates wildly overstated what Ford could deliver. Ford posted an adjusted loss of 23 cents per share. Wall Street had expected an adjusted loss of 12 cents per share.
Not surprisingly, revenue for the quarter fell big, dropping 15% from the same quarter a year ago. And the company’s operating loss of $1.66 billion was a huge turnaround — in the wrong direction — from a year ago when Ford recorded operating income of $1.2 billion.
I can’t forget the big news. Ford acknowledged losing a total of $2 billion in the quarter, giving the company its first earnings loss since the Great Recession in 2009.
That could be nothing in comparison to the second quarter, when the company could lose as much as $5 billion, CFO Tim Stone said.
While Stone sought to reassure investors, saying he’s “more confident than ever in what we’re going to accomplish in the future,” investors aren’t buying it.
F stock fell 5% after the earnings report, and despite a slight climb in the last month, shares are still below $6.
To put it in perspective, you can buy 140 shares of F stock for the same money that it would take you to purchase one measly share of TSLA. Of course, you have a much better chance of that TSLA share being worth something down the road.
Factory Shutdowns Weigh on F Stock
Of course, the novel coronavirus is the biggest obstacle facing Ford — and every other automaker — right now. Massive factory shutdowns and skyrocketing unemployment combined to hamstring the industry.
Forty-three states now are reporting record unemployment levels, and a White House official projects that the overall unemployment rate could reach as high as 23%. Currently, 38 million people have filed for unemployment.
Ford carries $140 billion in Ford credit, and with so many people out of work, the odds of defaults will increase on those loans, even if Ford tries to work out reduced payments with its borrowers.
And then there’s the matter of its plants. Ford couldn’t make new vehicles while plants in the U.S. and Europe were closed or producing ventilators.
Ford was likely burning through as much as $1 billion per week, and those numbers will weigh on F stock in the second quarter. Even as plants reopen, those numbers will be a burden.
CEO Jim Hackett sought to reassure shareholders at the company’s virtual annual shareholder meeting.
“The true economic fallout [of the coronavirus] … won’t be known for some time. And we’re mindful there might be new [COVID-19] outbreaks ahead. That’s why we’ve taken significant actions to reduce costs, preserve cash, and make sure we’ve got the financial flexibility to ride this out and emerge as a stronger company on the other side.”
The Cash (and Credit) Crunch
Ford borrowed $15.4 billion and has identified potential spending cuts, including a 10% reduction in capital expenditures officials say. The company also borrowed $15.4 billion to help it get through the year. Standard & Poor’s downgraded its credit rating to junk status as it sold $8 billion in bonds.
But those cuts will likely make it even harder for Ford to catch up with Tesla. Already, Ford announced that it will delay its autonomous-driving effort to 2022.
The Bottom Line on Ford
Unfortunately, this is a story without a happy ending. Two months ago, F stock earned a D grade in my Portfolio Grader. At the time, I warned you that things would just get worse.
That day has arrived. Ford’s Portfolio Grader score now is a pitiful F.
It’s a good thing Henry Ford isn’t around to see the fate of his family business.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.