Future Opportunities Reap Diversification Target Price: $16.00 – $17.00 Current Price: $13.25

Krause Fund Research
Spring 2016
Ford Motor Co. (NYSE:F)
Consumer Discretionary
Recommendation: BUY
April 19, 2016
Analysts:
Target Price: $16.00 – $17.00
Current Price: $13.25
Nicholas Barry
[email protected]
Future Opportunities Reap Diversification
Austin Moss
[email protected]
Company Overview:
Ford Motor Company (F) is a leader in the automobile
manufacturing industry whose core business processes are to
design, manufacture, market, finance, and service both Fordbranded vehicles and their luxury vehicles brand, Lincoln. With
global operations in North America, South America, Europe,
Asia-Pacific, and the Middle East & Africa, Ford’s diversified
outreach spans across all populated continents. Their two
operating segments, Ford Motor and Ford Credit, work
collaboratively in order to structure an environment focused on the
end consumer. Ford’s FY2015 performance was one of record
proportions, inclusive of $10.8B in pre-tax profit and over 312,000
more vehicles sold than 2014.
Stock Performance Highlights
52 week High
52 week Low
Beta Value
Average Daily Volume
$16.10
$10.44
1.34
38.13M
Share Highlights
Current Trading Price (4/18/2016)
Market Capitalization
Shares Outstanding
Book Value per Share
EPS (FY2015)
Trailing P/E Ratio
Dividend Yield
Dividend Payout Ratio
$13.25
$51.53B
3.91B
$7.22
$1.86
7.03
4.64%
32.26%
 Proven domestic leader: Ford’s best-selling vehicle, the F-150,
is thriving in today’s market environment of low borrowing
costs, low oil prices, and high consumer confidence. With a
contribution margin that is 135% of their average vehicle sold,
the F-150 will continue to drive margins in the near term. As of
April 1, 2016, Ford has seen F-150 sales exceed the second bestselling, North American vehicle by 57,156 units.
 Structured innovation in mobility: A new initiative, Ford
SmartMobility, is pressing into areas such as autonomous
research, ride-sharing, and connectivity. We believe this
positions Ford to be a leader in these spaces, creating value from
the start of any transportation shift that may occur. Ford is
currently spending more than the competition in R&D
expenditure as a percent of sales and vows to continue this
strategy as they triple their fleet of autonomous vehicles in 2016.
 Operational efficiency focused on change: Since the financial
crisis, Ford has put an emphasis on operational efficiency. With
an inventory turnover ratio of 14.34 times, Ford has the ability
to continually redesign their products to meet market conditions.
As environmental regulations increase globally, Ford will be
able to adapt and produce according to standard. Of United
States of America (U.S.) producers, Ford’s 2015 truck line-up
has the highest preliminary fuel economy with an average of
20.4 mpg.
 Weakness in long-term cyclicality: As market conditions shift,
as we project, to accommodate smaller growth in Ford’s largevehicle segment, their top-line will negatively react. Even with
these adverse effects of cyclicality, accounted for in our model,
we believe Ford to be undervalued.
One Year Stock Performance
Company Performance Highlights
ROA
ROE
Automotive Revenues
3.53%
29.72%
$140.57B
Financial Ratios
Current Ratio
Debt to Equity
1.92
86.82%
Source: Yahoo Finance
xli
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Executive Summary
We are issuing a buy rating for Ford Motor Company (F) for the
Krause Fund portfolio. This decision is based on Ford’s leading
market position, organic growth prospects, and forward-looking
operational standards. Ford’s recent year-over-year growth in
vehicle sales, U.S. market share, and revenues has supported value
creation greater than that of its nearest competitors.
Our valuation models represent these forecasts accordingly, and
support our issuance of a buy rating. We forecast increased
revenues to a peak of $160.98B in 2017 as high-margin sales
persist. In the long-run our predicted downtick in North American
revenue growth reduces our top-line, but is overcome by
increasingly efficient production processes. We believe these,
amongst other key forecasts, will drive Ford’s stock price to our
target area of $16.00-$17.00.
Macroeconomic Outlook
U.S. Gross Domestic Product
Going forward, our estimate for 2016 GDP growth is 1.8%
because of headwinds from rising interest rates and the economic
uncertainty that has lead the S&P 500 index into a near 14%
decline from its 2100 level in October, 2015 before rebounding in
March 2016 to 2,094 as of April 18, 2016. Additionally, we predict
global geopolitical risks and the slowing of global growth will
negatively impact U.S. GDP.
U.S. Consumer Confidence
Consumer confidence, a gauge of consumer’s feelings on the
economy, political stabilization, and future outlook for their
financial health is one of the most important indicators to look at
when forecasting the future of automobile sales. When consumer
confidence is high, the average consumer feels that their future
financial health is stable or rising and is therefore more likely to
spend money on discretionary items. The specific numerical value
of the consumer confidence index is not as important as the general
trend of the index. The general trend of the consumer confidence
index is one of the most important indicators of U.S. vehicle sales
because vehicle sales follow the same trend as the consumer
confidence index.
The real gross domestic product (GDP) is a measure of the goods
and services produced in a country during a given period of time,
after adjusting for inflation. GDP is an important statistic to look
at because it reflects the state of an economy fairly accurately. This
is important because consumers are more likely to spend money
on discretionary items such as automobiles, vacations, and other
luxury goods when the economy is doing well and they have
excess money to spendi.
Since the financial crisis of 2009, parts of the economy have been
recovering rapidly, but GDP growth has been stagnant between
1.5% and 2.5% over the last six years. This GDP data could
indicate a mediocre period for discretionary sales, but 2015
boasted a record breaking year for automobile sales in the United
States. Our team believes that, while Real GDP is usually a good
indicator for discretionary sales, other indicators such as consumer
confidence, interest rates, oil prices, and employment statistics are
currently better measurements and indicators because they are
more closely related to consumers.
Source: U of Michigan, FRED Economic Dataiii
Given recent consumer confidence levels it should not be a
surprise that 2015 was a record year for automobile sales. When
consumers are confident that they are in a financially stable
environment they are more likely to take on risk (debt) than if they
were unsure about their job security, future inflation rates, or
political instability.
We believe that the slight downtick in the consumer confidence
index in January and February were reflections of the poor equity
market performance and expect that consumer confidence will rise
to its 2015 highs in 2016. This is important to our model because
we expect North American automobile sales to grow slightly in
2016 from an already record 2015.
U.S. Interest Rates
Source: Fred Economic Dataii
The U.S. and global economies are in a peculiar time for monetary
policies. Never before has the world seen such intervention by
central banks to influence interest rates around the world. The U.S.
Fed raised its Fed Funds rate by 0.25%, from 0.25% to 0.5%, in
December 2015. Originally, the Fed stated that it intended to raise
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its rates by 0.25% four times in 2016. However, with the early
volatility in the markets, the Fed has backed away from that stance
and failed to raise rates in March. Fed Chairwoman, Janet Yellen,
has also seemed to be taking a more dovish stance on raising rates
and signaled that the Fed now plans to do so only twice during
2016. As you can see, a 10-year treasury note yielded about 5%
before the recession, but now yields only 1.8%. This marked
decrease in interest rates have propelled the recovering economy
forward, but if the Fed waits too long, inflation could get out of
control and put the U.S. right back into a recession.
Global Oil Prices
Oil prices were in freefall from the summer of 2014 to midFebruary 2016. This sharp price decline erased $80 from a barrel
of oil when it hit its low of $26. Since mid-February, oil has rallied
to as high as $43 a barrel and now sits around $40. Lower oil has
many effects on our outlook for Ford because it can be seen in so
many different indicators. But, it mainly affects these indicators
through its production into gasoline.
Gasoline may be one of the largest expenses a household has and
is definitely one of the most visible and volatile. We believe that
lower gasoline prices are one of the reasons that consumer
confidence has been so high over the last year. The lower gas
prices put more money into consumer’s pockets and make them
better off financially. This, in turn, raises the consumer confidence
index. With the U.S. personal savings rate at only 5.5%, it leads
us to believe that 94.5% of the money saved at the pump is being
spent in the economyvi. Since this is excess money, that a
consumer probably did not budget for, it is more likely that they
will spend it on discretionary items such as automobiles. We
believe that the combination of a high consumer confidence index
and low gasoline prices is a major indication that automobile sales
will continue to increase in 2016.
Source: FRED Economic Dataiv
Interest rates are a very important factor in a consumer’s decision
to purchase a vehicle. Vehicles are primarily purchased using
some type of financing, and the lower the interest rates the more
affordable a new vehicle is to the everyday consumer. We expect
the Fed to continue to influence interest rates upward over the next
several years, but we think that they will remain dovish during
2016, raising the Fed Funds rate only once. Our model builds this
expectation into the sales of cars by moving future purchases to
2016. We think that the marginal consumer who may be ready to
purchase a car in 2017, 2018, or 2019 may consider moving their
car purchase forward to 2016 because of the expectation of future
higher interest rates. This expectation leads to more car sales in
2016 and a decline in car sales in 2018 and 2019.
Oil will continue to be volatile throughout 2016, but won’t begin
to make significant price movements upward until Q2 2017. We
believe this based on our analysis of oil production and demand.
The below EIA graph shows this imbalance between supply and
demand and when the excess supply should be eliminated. In
addition to the EIA forecast, we believe that Iranian oil coming to
market will keep oil prices around the mid-$30s to low-$40s
during 2016.
Source: EIA Datavii
Source: Fred Economic Datav
We also take the expectation of higher interest rates into
consideration when forecasting capital expenditures. Ford is
looking into branching out of the typical automobile
manufacturer’s role and expand into new areas such as public
transit and mobility. We believe that the expectation of rising
interest rates may lead Ford to borrow and invest more now so that
they can avoid the higher rates several years from now.
In the long-run, we believe that oil will not get much higher than
$55 per barrel throughout our forecast horizon, to 2021. This will
still translate into relatively cheap gasoline prices when compared
to the $4-5 per gallon we saw when oil was more than $100 per
barrel. We forecast that oil will remain below $60 per barrel
because that is the typical break-even price for most American
fracking companies from exploration to extraction. The slowdown
in supply that people were expecting from lower prices isn’t
occurring because existing fracking-wells have a break-even price
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of around $28 per barrel. We expect for oil prices to remain
between $30 and $60 for the foreseeable future. Near the lower
end of this price corridor we estimate that automobile sales will
continue to be strong. As oil approaches the upper-end of the
corridor, automobile sales will simply be “okay” and decline from
their record-highs.
U.S. Current Employment Statistics
As previously discussed, discretionary spending is highly-linked
to the strength of the spending environment. There are three main
requirements, which apply to the average consumer, for spending
money on discretionary items.
1.
2.
3.
Employed
Making a fair wage
Confidence in their future employment status
We believe that these are the three main items that lead consumers
to spend more freelyviii.
Employed:
Currently, the official unemployment rate sits at 5.0%, which is
still slightly higher than the unemployment rate before the
financial crisis, 4.6%. With interest rates remaining low for the
near future we see the trend in unemployment continuing
downward to about 4.6% within the next two to three years .
We also believe that the minimum wage is likely to rise. There are
already cities and states that are raising the minimum wage above
the $7.25 national minimum and we expect this trend to continue
as it becomes an even bigger issue as the U.S. approaches the 2016
presidential elections. California has recently raised its minimum
wage to $15 and we suspect that economists and politicians will
be looking at the outcome of this “experiment” to determine if it
would be beneficial for the entire nation. Both Democratic
candidates have raising the minimum wage as a key issue in their
platforms and we suspect that this will be one of their first
priorities if they become President of the United States.
A rise in wages, whether from market-forces or political
interaction, will have positive effects on discretionary spending.
Effects from a higher national minimum wage could have a
substantial effect because these employees will have a higher
percentage increase in income (some up to 100%), which they will
likely spend on upgrades to items such as housing and
automobiles.
Confidence for the Future:
The third item that is a large influencer of discretionary spending
is the consumer’s confidence in their future financial stability.
With wages rising and unemployment falling or remaining flat we
expect that consumers will remain as confident, if not more
confident, when compared to today. Certain issues could
negatively affect confidence for the future such as political
instability, rising inflation rates, and stock market turmoil.
However, within the next two years we believe that the only
possibility of a marked decrease in confidence is in the event of a
prolonged stock market downturn.
Overall, the employment statistics and outlook are very good for
the discretionary sector and automobile manufacturers. We expect
that a falling unemployment rate, higher wages, and a flat to rising
confidence in the future will positively impact Ford and the sales
of their higher-margin vehicles, such as the F-150.
Europe
Source: FRED Economic Dataix
As the unemployment rate continues to near 4.5%, which we
believe to be the full-employment rate, the pressure that this puts
on wage growth will begin to increase America’s wages.
Making a Fair Wage:
Much of this political season has revolved around families and
workers who believe that they are not being paid a fair wage. This
unfair wage could be due to a national lack of wage growth or
because the minimum wage is too low. Either way, we believe that
both will be increasing in the near future.
The national stagnation of wages has mostly occurred because
there are many people still searching for jobs, post-recession.
When there is a supply of qualified labor there is no incentive for
businesses to raise wages to attract the most-qualified. However,
now that the US is approaching full employment, businesses are
running out of qualified labor and will have to begin to raise wages
to attract qualified talent to their businesses.
Overall, Europe has not been able to recover from the Global
Financial Crisis as quickly as the United States. With an
annualized growth in GDP of only 0.3% in Q3 and Q4 2015,
several economists are moving their GDP forecasts down 0.1% for
2016 and 2017 to 1.5% and 1.6%, respectively. We believe that
the European Union will see worse-than-expected GDP data,
around 1.3% for 2016, because of some political uncertainties
within the Union. More specifically, the possibility of Britain
leaving the European Union will damper investment until the
political uncertainty is taken care of on June 23 rd.
European Central Bank (ECB) Chief, Mario Draghi, recently cut
the ECB’s main interest rate to 0% while expanding quantitative
easing to €80 billion per month, which will now include the
purchase of corporate bonds. The quantitative easing will last until
at least March 2017, while Mr. Draghi also said that interest rates
will remain “very, very low” beyond quantitative easing. For
2016, this will have a positive impact on Ford because of the low
cost for consumers to finance their vehicles. It also allows Ford to
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run incentive programs, such as 0% financing, at much cheaper
costs. However, if the European Union growth remains stagnant,
our team believes that the ECB and other central banks, such as
Japan’s central bank, may be running out of ammunition to combat
deflationx. This would ultimately hurt Ford due to the global
recession that would likely ensue.
Asia-Pacific
Asia-Pacific is the only geographical region where GDP growth is
expected to be over 4% for the foreseeable future. The largest
opportunity for Ford in this region is China and is where we expect
Ford to realize the majority of its global growth over the next five
years.
Although China’s GDP growth has been slowing recently, it is still
growing faster than any other nation of decent size. One of the
reasons that China’s GDP growth is slowing is because of the
transition to a nation that is more consuming in nature. Though
this transition will hurt China GDP outlooks, we believe that it is
a positive development for Ford because the people of China are
starting to reap the benefits of being a prosperous nation and being
able to consume more goods and services.
While China struggles with some political risk factors, the Chinese
government is becoming more transparent and more like
democratic nations every year. While there is a risk for companies
who become dependent on China, we believe that this is minuscule
risk because of the position that China is trying to take amongst
the top economies in the global economy. This rise to political
power will only allow more transparency into the country and will
ultimately help more Chinese citizens rise to the middle- and
upper-classes.
South America
Our outlook on South America is very negative for 2016 and the
following three years because many of the economies are very
dependent on commodities. This dependence on commodities has
lead for very cyclical economies in South America. Currently,
with most commodity prices near multi-year lows the
governments are running large budget-deficits and some countries
are experiencing inflation that is out of control. In Q4 2015, South
American economies began to contract at an increasing rate of
1.2% from 0.5% in Q3. Overall, contraction for 2015 was 0.1%,
mostly due to the weakness of its largest economy, Brazil, who
had its worst economic performance in decades xi.
Due to our outlook for slightly higher oil and other commodity
prices, the political instability in Brazil, and overall economic
weakness, we believe that South American economies will grow
at only 0.5% in 2016 and 1% in 2017. We believe that the
economic weakness in South America is much different than the
economic weaknesses in North America and Europe because the
consumers are being effected more in South America, by things
such as high inflation rates, and is an area of the world where there
is not an “economic cushion” like that enjoyed by North American
and European consumers.
Middle East & Africa
The Middle East & Africa (ME&A) are two regions of the world
where many of the economies are heavily dependent on revenues
from oil production. Many of these countries use oil revenues to
pay for their government budgets. In addition to a heavy
dependency on oil, the Middle East & Africa are the most
politically unstable and least democratic regions in the world. Ford
does not have any key markets in the ME&A region.
Non-oil producing countries in ME&A have had a pick-up in
economic activity, helping the broader ME&A grow about 2.5%
in Q4 2015, and 2.6% on the year. Saudi Arabia and UAE, two of
the largest oil producers in the world, were able to hold GDP
growth relatively steady, when taking into consideration the steep
drop in oil prices, as low oil prices stimulated investment into the
non-hydrocarbon industryxii. Due to lower oil prices, several of the
governments in these regions are no longer able to spend as much
on infrastructure and social programs. The cuts that the
government will have to make to these initiatives will cause 2016
to be another year below ME&A’s historical growth trend. We
expect 2016 GDP to be 2.6% as some nations continue the increase
in economic activity, while others are forced to cut spending
because of their budget deficits.
Market Outlook
This year began with high market volatility and a 10.7% drop in
the S&P 500 from January 1st to February 11th. Since then,
however, stocks have rallied to post gains, up 2.74% YTD, with
the S&P 500 around 2,094. With the Fed signaling a more dovish
position on interest rate hikes we forecast that the S&P 500 will
trade in the 2,000 to 2,125 range for the year as the markets worry
about interest rate hikes later in the year. We believe that the
movements of the overall market will have a negligible effect on
Ford during 2016 unless another unexpected drop in stocks occurs,
in which Ford will be negatively impacted due to the perceived
correlation between stock market health and economic health.
Industry Analysis
Overview
Our team identifies Ford to be operating in the automobile
manufacturing industry, which is primarily attributed with the
design, manufacturing and subsequent selling of motor vehicles.
Most automakers, Ford included, are connected to the vehicle after
the initial selling point by means of regular service schedules.
Revenue streams through a wide customer base that includes
individual consumers, as well as, more fleet-type channels.
Aggregately this industry’s product line is comprised of, but not
limited to, sedans, compact cars, luxury cars, SUVs, and pickup
trucks.xiii Though Ford sells products in the majority of these
categories, our team believes they feel most secure with their
pickup truck sales. According to their 10-K, their average
contribution margin on large vehicle sales is 135% of their total
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average contribution margin across all vehicles. xiv As of April 3rd,
2016, Ford has seen its F-Series trucks become the most purchased
vehicle in the U.S., during 2016, with approximately 186,121 sold
thus far.xv
Source: WSJ Market Dataxvi
Industry Trends
Domestic Demand Recovery:
Within the United States, vehicle sales have recovered since the
economic crisis of 2008. As the graph below indicates, vehicle
sales are as high, if not exceeding, those of the pre-recession
environment. In 2006 and 2015 Ford sold approximately 3.123
and 3.073 million vehicles, respectively. Over our historical time
period, both data sets dropped approximately 38% from their 2006
high to their 2009 low.xvii Ford’s recovery has been closely
correlated to the overall automotive market, though it does slightly
outperform it, as its vehicle sales post-recession have outgrown
the market in four of six years. In the first growth year, 2010, Ford
outperformed the market by 13.9%. While more recently Ford’s
2015 YoY growth was 2.18% higher than that of the market.
Age as a Key Determinant:
Throughout the recovery and into the forecast horizon, our team
feels that the movement to a car-buying environment led by
Millennials will bode well for Ford. According to J.D. Power and
Associates, as cited within a Standard & Poors research article,
millennials accounted for 28% of automotive sales in 2014, while
Generation-X buyers only accounted for 24% of the total.xviii
Though their margins aren’t as high as larger vehicles, there is a
transformation taking place in the way consumers move from one
place to another.
Ride-sharing, fleet-type services are becoming highly popular,
largely due to companies such as Uber and Lyft and the
Millennials who are rapidly adopting this new industry. As Ford
presses into this industry with initiatives like GoDrive, we see
Ford entering these markets as an insurance policy against global
declines in automobile sales if ride-sharing becomes a widelypopular option for people across the globe. The demographic shift
in the automotive industry has plenty of potential opportunity
available, but, this would have negative effects on both wholesale
units and average selling price. We have forecasted this possible
shift, in how people use transportation, to continue to gain in
popularity and have considered this when forecasting decreasing
revenues in North America, while slowing growth—compared to
what it could have been—in Asia-Pacific and Europe.
Similarly, the age of vehicles on the road has been increasing over
the past couple of years to an average of approximately 11.5 years
in 2015.xviii High average age points to signs of potential vehicle
replacement in the near future. As a majority of millennials are just
entering the market, we assume these older cars to be held by the
Gen-X generation. In Ford’s advantage, the age of Gen-Xers puts
them in a more likely spot to buy SUVs and larger vehicles. Due
to the potential for an increase in the cost of borrowing, these GenXers might opt to purchase now and lock in a lower rate for their
financing plan. In the near term, this idea relates to our assumption
of a higher average selling price, specifically 3.00%, in North
America.
Recalls:
Source: FRED Economic Dataxvii
Over the last three fiscal years, trucks have accounted for 52.2%,
54.4%, and 56.8% of total retail vehicle sales in the United
States.xviii When oil prices are lower the consumer is more inclined
to purchase larger vehicles, even though they are generally more
expensive. The reality of an increased demand for these vehicles
throughout the recovery is pertinent to Ford’s success on their
margins. We forecasted this assumption accordingly in our North
American revenues by slightly increasing the average selling price
of vehicles sold in the short term.
Of high concern to both our team and consumers looking to
purchase a new vehicle is the issue with vehicle recalls. As cited
from the National Highway and Traffic Safety Administration
(NHTSA)xix, vehicle recalls have trended upward over the past
several years to 51 million vehicles being affected in 2015, 64
million in 2014, 22.1 million in 2013, and 16.5 million in 2012.xx
Within Ford’s competitors, Ford recalled the least number of
vehicles in 2014, totaling just 4.78 million vehicles. For a
perspective, General Motors recalled 28.83 million vehicles over
the same span and Honda recalled 9.04 million.xx Though Ford has
had a history with large recalls, more recently they seem to have
overcome their faults and produced according to standards.
We forecast an increased regulatory environment moving forward,
but Ford’s ability to actively change inventory leaves them ahead
of the curve when new regulations hit the market.
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Though Ford isn’t on the top of the U.S. market, they do show
growth from last year’s number. More specifically, Ford has sold
49,687 more vehicles in Q1 2016 than in the previous year. For
this same comparison, GM fell 341 vehicles and Toyota fell 6,541
vehicles. Our team is suggesting that, while Ford isn’t the numberone aggregate seller, their growth of 8.4%, which is the most
across automotive sellers, is promising.xvi This growth is
occurring, partly, due to the impressive performance of Ford’s F150 and SUVs.
Source: National Highway Traffic Safety Administrationxx
The NHTSA is currently investigating the 2013 and 2014 Ford F150 due to a potential failure in braking systems. xxi It is estimated
to affect close to 420,000 vehicles in the United States. As this is
not considered a recall yet, our team is watching this story with a
close eye. Similarly, the 2016 F-150 is also under recall for airbag
deployment defects, for which Ford began the remedy process on
March 11th, 2016.xxi
Undoubtedly, the impacts of the recent recall environment have
made their way into the market. We believe consumers, though
discouraged by the press releases, will continue to assume the risk
associated with owning a vehicle. Our team predicts that Ford’s
well below-average level of recalls might be a defining factor for
those consumers most concerned, and result in further market
penetration.
Competitive Environment
Comparable Company Analysis:
Within the industry our team identified four primary competitors:
General Motors Company (GM), Toyota Motor Corporation,
Honda Motor Company, and Fiat-Chrysler Automobiles. We
selected these companies under the primary characteristics of size,
market outreach, and global recognition. All of these companies
are considered to be major competitors to each other. The
following metrics were chosen at the discretion of our team, as we
felt they were best suited to help describe the broad industry
environment in which Ford operates.
Source: WSJ Market Dataxvi
Also positive for Ford’s U.S. operations, as compared to its
competitors, is their domestic market share. As shown in the chart
below, Ford is growing in market share due to their recent sales
spike. At this point in 2015, Ford was in control of about 15.0%
of the market, whereas, in 2016, they control about 15.7%. This
increase of roughly 4.7% further solidifies their growth potential
in a time where most competitors are lagging in sales. GM has lost
3.5% of U.S. market share in 2016.xvi Our team forecasts further
market share growth in the domestic market where others, such as
Volkswagen, are losing. Additionally, though Ford lacks in global
market share, by about 6% when compared to GM and Toyota, we
feel their domestic presence strengthens their position to move
forward in emerging markets.
Company
Gross Margin%
Market Share
5 YR Sales CAGR
Price/Sales
ROA
Ford
15.90%
11.56%
5.00%
0.3
3.36%
GM
17.50%
17.35%
2.70%
0.3
5.21%
Toyota
21.90%
17.69%
8.10%
0.7
4.87%
Honda
22.80%
3.90%
11.40%
0.4
2.96%
Fiat-Chrys
10.80%
8.03%
N/A
0.1
0.32%
Source: Bloomberg Dataxxxix
Source: WSJ Market Dataxvi
As seen in the table above Ford is competitive in multiple industryrelated metrics. Ford’s low gross margin percentage of 15.9% is a
reason Ford is focusing on operational efficiency. Also
noteworthy, is Ford’s 5-year sales CAGR which is approximately
5.0%. When compared to its nearest competitor in the United
States, GM, it exceeds it by 2.3%, which is the result of a
promising shift in domestic consumer behavior.
Notable, due to the high fixed assets associated with this industry,
is the return on assets (ROA) of each firm. Ford’s ROA of 3.36%
lacks behind competitors GM and Toyota, but our team still
interprets this as a strong metric for Ford. Through further
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analysis, we found that this metric is lower primarily because of
financing practices across the companies. In 2015, Ford had
$90.7B in financing receivables while GM had just $18.1B and
Toyota had approximately $51.6B. If the excess $40B were
extracted in an act of comparative statistics, Ford’s ROA would
increase to a more comparable 4.38%.
In summation, our team feels as if Ford is well positioned within
this highly-competitive industry. Due to their increase in sales,
growth in market share, and versatile inventory management
practices, Ford is setting the stage for an advantageous operating
environment in the coming years.
Porter’s Five Forces:
Interestingly enough, it appears that Ford, GM, and Honda have
roughly the same price-to-sales ratio. As Ford’s ratio, 0.3, is right
on par with competitors, our team assumes Ford is currently not
being overvalued on a sales basis.
Threat of New Entrants: Moderate
Our team feels the capital-intensive, highly regulated, and
technologically advanced nature of the industry will prevent new
entrants. However, if non-automotive companies, such as Google
or Apple, do develop a self-driving vehicle, the need for this
technology will allow for a smaller manufacturer rise to the top.
Threat of Substitution: Weak
Realistically, there is no real substitute for a vehicle. The less
feasible substitutions of motorcycles and bicycles hold little power
in the market and we don’t foresee them overcoming the vehicle’s
popularity.
Source: Company Annual Reportsxivxxxxxiixxiiixxiv
Though Ford’s gross margin is lagging behind two of their
competitors, our team feels this is overcome by their inventory
turnover ratio. Ford’s ratio of 14.34 times exceeds its nearest
competitor, GM, by approximately 5 flows a year. This is
representative of the recent move to implement lean operations at
Ford, which we expect will improve gross margins overtime. As
cited in their 10-K, “…we build to order, not for inventory”. xiv
They generally have an order produced and shipped within 20 days
after the order is logged.xiv This is especially important because
inventories throughout the industry have been growing steadily in
the recent past as shown by the following graph. Similarly, Ford’s
value of inventory has been rising as of late, too. From their 2009
low of $5.04 billion to its most recent 2015 measure of $8.32
billion, Ford has continued to efficiently handle their inventory
even with growing inventory levels. This turnover coupled with a
solid gross margin leaves Ford with an efficient, lean production
process structured for the long-term.
Power of Suppliers: Moderate
Suppliers in this industry play a vital role within the production
timeline, but are constricted by contracts. These contracts set forth
by the manufacturers reduce the suppliers’ ability to bargain. Our
team feels the global supply chains these companies operate on
vastly increase competition for supply and decrease the chance for
domination by one supplier.
Power of Buyers: High
Individual consumers are generally the buyers and they have a
considerable amount of power. Because there are many options
available, there is nothing keeping a consumer with a company.
For this reason, manufacturers must be aware of their lack of
bargaining power and compete for the consumer’s business.
Competitive Rivalry: High
According to IBIS World, the competitive forces driving the
competition in this industry are primarily price, reliability, fuel
economy, utility, and styling.xiii As vehicles have been a necessity
within our society for some time now, we feel that the means by
which companies compete have been steady. Winning over
consumers in this industry has been, and will be for the foreseeable
future, very difficult.
Catalysts for Growth & Change
Connective Technology:
Source: Fred Economic Dataxxv
Internet research has dramatically changed how the car purchasing
process flows, and industry super-giants must move with the trend.
As reported by S&P, approximately 70% of millennials that go to
a dealership to purchase a car already know what they want. xviii
Many dealerships offer salespeople tablets and other technological
devices to make the selling process more interactive. Though this
helps, we don’t feel like it totally uses the opportunity lying in this
new-age trend. Instead of continually attempting to compete
against online automobile information companies such as TrueCar
or Edmunds, the industry leaders should attempt to forge
relationships with them. Through some research, we found that
TrueCar attempts to partner with dealers, and this is important. As
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more and more people shift to researching before visiting, most
likely a number close to 100%, we feel it is vital for manufacturers
to tap into this revolution. We foresee the best performers going
forward will be those tied closely with the research agencies.
Moreover, our team feels the idea of a more collaborative lifestyle
for the up-and-coming population ties directly into constant
connectivity. Within this space, Ford is pressing ahead with
initiatives like FordPass and SYNC. By 2020, Ford estimates more
than 10 million vehicles in the U.S. will be connected by way of
SYNC. Coupled with FordPass, these programs attempt to match
consumers with everyday services like parking facilities, dining
options, and gas stations.xiv
Emerging Markets:
Company Analysis
General Information
Overview:
Ford is an established automaker whose core business is to design,
manufacture, market, finance, and service both Ford and Lincoln
luxury vehicles.xiv They operate with two primary arms: Ford
Motor and Ford Credit. Ford Motor produces and sells vehicles
while Ford Credit focuses on financing options for customers.
With operations in North America, South America, Europe, the
Middle East & Africa, and the Asia-Pacific, their operations are
diversified across the globe. With strong revenue generation
coming from North America, approximately 65% in 2015, Ford’s
overall success is tightly tied to U.S. market forces. Additionally,
our team identified the Asia-Pacific region as being the fastest
growing region in which Ford operates. Moving forward, our
team identified these trends and accounted for them in a way that
correctly encompasses our view on growth opportunities for the
firm.
Source: Statistaxxvi
In order to gain global market share, players in this industry must
focus on tapping into emerging market possibilities. As the turmoil
in South America continues, our team agrees with consensus and
sees the Asia-Pacific region as being most promising in terms of
future growth. In 2014 not only did this market grab 47.5% of total
automotive sales, it also produced close to half of the world’s
automobiles.xviii As compared to North America’s 2014 production
of 16.9 million vehicles, Asia-Pacific dominated this industry by
producing approximately 44.3 million vehicles.xiii This is just one
instance of this region dominating in manufacturing, a trend that
has become relevant in more than just the automotive industry. As
money flows in, money is also flowing out rapidly.
As seen in the above chart obtained from Statista, the Asia-Pacific
region has grown exponentially in just the past four years alone.
With China being a big player in this region, we see recent
government regulations such as a reduction of small-vehicle tax
by half as a huge opportunity.xxvii We forecast Ford to grow in this
region by 21.90% in 2016 and 10.24% in 2017 based on the idea
of their strong presence in the region. With 12 of their 67 global
manufacturing plants in the segment, Ford is expanding
organically into the region.xiv
Source: Ford FY 2015 10-Kxiv
Corporate Strategy:
Ford’s corporate strategy is primarily focused on driving growth
within its core business by offering reliable, quality vehicles at a
competitive price.xiv The strength of their business model lies
primarily in this type of organic brand growth. With promising
core business growth prospects, Ford aims to connect their
strengths with emerging opportunities as a means to create
experience for customers.
From a top-level perspective, this plan is defined as an initiative
to become a leaner, more inclusive, and innovative workplace in
preparation for the many emerging opportunities. Ford is pushing
into these spaces with their Ford SmartMobility program, which is
discussed in depth at a later point in this analysis.xiv
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Life Cycle:
As assessed by our team, Ford is currently in the mature stage of
their life cycle. Officially incorporated in 1919, with the
acquisition of a Ford Motor Company, Ford has over a century of
market experience.xiv Additionally, their production processes
have welcomed the technological revolution with open arms,
improving efficiency and further establishing the manufacturing
process. The market knows Ford, and Ford knows the market.
With strong presence across the globe, we foresee Ford as a
company that will continue to grow and disrupt the automobile
industry.
Products and Markets
Source: Ford FY 2015 10-Kxiv
Product Lines:
As shown in the chart above, it’s obvious that market conditions
directly affect the amount of revenue that Ford generates from
each separate operating division. In the post-recession, low rate
environment, Ford Credit has seen financing revenues drop
approximately 46.53%. Over our historical data period, financing
receivable income went from $16,816 million in 2006 to
approximately $8,992 million in 2015.xiv Even with a postrecession revenue recovery of approximately $30 billion, Ford has
seen the majority of this come from automotive sales. Our team
predicts this revenue trend to reverse and for financial revenues to
have a larger impact on Ford’s bottom line. We forecast financial
services revenue to bounce back to about $13,764 million by 2021.
Automotive products include cars, trucks, SUVs, and electric
vehicles such as the F-150, Explorer, Focus, and Mustang. They
released 16 products in 2015, and plan to add another 12
throughout 2016.xiv As discussed throughout the report, our team
feels the most vital part of their business is offering new,
innovative products in order to attract consumers. They offer these
to the average consumer, but also to institutions such as
governments, rental car companies, and businesses seeking fleettype transportation.
Ford’s top three vehicles as of April 1st, 2016 is led by the F-150
with 186,121 units, followed by the Fusion with 74,994 units, and
the Escape with 71,594 units. This distribution, inclusive of a
truck, a sedan, and an SUV is representative of Ford’s diverse sales
structure. Though the margin on the F-150 drives a majority of
profits, Ford also excels in selling other vehicle types across the
board.xxviii
Ford Credit offers financing through two primary segments:
consumer and non-consumer. Consumer financing is related to
getting the vehicle to the end customer. Non-consumer financing
focuses on inventory needs, dealership improvements, and various
working capital issues.xiv
Revenue Generation:
Revenue streams through a variety of channels, all stemming from
vehicle sales at dealerships. Primarily, their revenue is obtained
through the direct sale of, and subsequent financing of vehicles,
parts, and accessories. More specifically, Ford receives revenue
from both arms of its operating structure, though in varying
amounts. When dealerships build inventory, they finance the
inventory through a contract with Ford Credit. Subsequently,
when the dealership sells the vehicle to a consumer they pay the
finance receivable that was previously originated.xiv
Analysis of Recent Earnings and Guidance
In late January of this year the Q4 and FY 2015 reports were filed
and, for the 34th straight year, the Ford F-Series pickup was the
best-selling vehicle in the U.S. Additionally, Ford reported record
years in multiple relevant financial metrics. They reported $10.8
billion in pre-tax income and an increase of $3.3 billion in
automotive income on the back of strong sales numbers with YoY
growth of 312,000 vehicles sold.xxix Ford saw profitability in all
operating segments except for South America, with the strongest
gains in North America. We feel this domestic trend, as backed by
an operating margin of 10.2%, stems from strong economic factors
such as low oil prices and the ease of borrowing pushing higher
margin vehicle purchases. Along with SUV and truck sales, Ford
saw their Lincoln luxury brand boost 21% in the most recent fiscal
year. Operating margins in other areas were lower, with 7.1% in
the Asia-Pacific, 0.8% in the Middle East, 0.9% in Europe, and 14.4% in South America.xxix Our team feels that Ford has some risk
being so focused on the North American economy, however, Ford
is working on increasing their presence in Europe, Asia-Pacific,
and Middle East & Africa.
Production and Distribution
Distribution Channels:
As stated in their annual report, Ford has no major customer that,
if halted business with Ford, would have a major adverse effect on
operations.xiv This diversified approach reduces their potential risk
associated with a small distribution channel. To distribute vehicles
to both individual and fleet customers, Ford operates through a
global network of approximately 11,971 dealerships.
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Operating Margins:
Competition
Profit Margins:
Due to the nature of the automobile industry, as it is driven
primarily on sales of vehicles, our team felt it necessary to discuss
the ratio of net income to sales across our competitors. In the graph
shown below, we have constructed a graph of this metric over the
last 3 years.
Source: Ford Financial Statementsxiv
Over the last four years, Ford has generally been improving in both
operating and cash flow margins. Their cash flow margin has
improved to 11.50% from 7.63% in 2011. Similarly, operating
margins have improved even in an environment of rising cost of
sales to most recently 17.42%. This increase in margins has shown
to be very profitable for the business in an environment of
increasing revenues. As previously discussed, these margins are
primarily driven by the sale of large vehicles, which we forecast
to continue in the near term.
Source: Company Annual Reports
Variable Cost of Sales:
As shown in the above chart, Ford has beat the average of all
competitors in two of the three years analyzed. Their profit margin
of 8.14% in 2013 exceeded the industry average by almost 3.59%.
Similarly, their 2015 profit margin also beat the industry average
and was a huge increase from 2014, up almost 477% YoY, due to
a rebound in demand. Aggregately across the time span, Ford’s
average profit margin of 4.64% was larger than its strongest
competitor, GM, who had an average margin of 4.11%. This
average was inclusive of the off-year Ford had in 2014, and goes
to show that when the market is clicking, Ford exceeds its biggest
domestic competitor.
Source: Forecasted Financial Statements
Return on Equity:
Higher margins, coupled with increased political tension
surrounding the wage debate made for labor conflicts in FY2015.
Within both major U.S. automakers, Ford and GM, labor contracts
were negotiated and have been cited to increase labor costs by less
than 1.5% a year.xxx,xiv As the labor contracts are locked for four
years, we forecast increased foreign production as a solution to
demand fluctuations in the near term. As expected, Ford’s public
announcement of a $2.5 billion investment into Mexico for a
manufacturing facility is experiencing drag from the media. Ford
supported this decision with the initiative to become a more
globally involved company.
However, we forecast Ford to experience increasing margins yet
again throughout the forecast horizon. The wage increase will
have a minimal adverse effect on their operations, as 38 of their
manufacturing facilities are located internationally. Similarly, the
majority of COGS, roughly two-thirds, is attributed to commodity
and material related expenditures. As Ford’s cost management
practices push forward with economies of scale in emerging
markets, we foresee the margin to hit a bottom, then gradually
increase.
Ford excels in its ROE as it surpassed the industry average by a
margin of 12.42%. Compared to the average of its competitors,
Ford returned almost 13 cents more per dollar of stockholder’s
equity. Ford’s exceptional metric of 27.53% is noteworthy
because what Ford lacks in market presence, compared to some of
the competition, they make up for with quality returns that
investors enjoy.
Source: Yahoo Financexli
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Catalysts for Growth & Change
Research and Development:
We believe that moving forward into a changing automotive
environment, Ford must continue to pursue new technologies and
innovative solutions. They are tackling this situation with their
Ford SmartMobility program. This program is aimed to increase
efficiency in areas like connectivity, autonomous vehicles, and
mass transit solutions.xiv
As Ford is very strong in this space, we feel it necessary to discuss
some of the ongoing projects Ford has been working on lately. In
the space of autonomous vehicle research, Ford has taken the lead
by vowing to triple its fleet of autonomous Fusion Hybrids in
2016.xiv This increase leaves Ford with the largest autonomous
research fleet of all automakers.
In the future, we forecast an increase in the use of ride-sharing
technology, which Ford is currently investing in. Ford CEO, Mark
Fields, has publicly stated that Ford is looking to not only sell
autonomous vehicles, but also use them as a service. They
launched a ride-sharing experiment, GoDrive, in London in early
2015. This was nearly a full year prior to GM’s first experiment
that launched in Ann Arbor in January of this year. xxxi
Government Regulations:
Source: Company Annual Reports
As compared to the other companies analyzed, Ford’s R&D
expenditures as a percentage of revenues has exceeded that of the
average competitor by 0.30% in 2015, 0.49% in 2014, and 0.05%
in 2013. Similarly, Ford has received an average of $1.07 in
income per dollar used in R&D. This exceed its nearest
competitor, GM, by approximately $0.22. They have also beat the
competitor average in this space by close to $0.05. We interpret
these results as a strong indicator that Ford is not only beating the
benchmark in dollars spent on R&D, but also returning more to
shareholders in net income per expensed R&D dollar.
Source: Company Annual Reports
Tied back to Ford's lean operations, our team projects Ford as
being the best able to shift with demand fluctuations because of its
high turnover ratio. If changes are to be implemented, Ford can
actively insert them in the production process without being
lagged by a bulky production process.
Source: United States EPAxxxii
In an increasingly regulated automotive environment, it’s vital for
Ford to continue working towards an improved fuel economy. As
part of the One National Program through both EPA and NHSTA
intervention, manufacturers must achieve an industry-wide fuel
economy of 35.5mpg by 2016, 45mpg by 2021, and 54.5mpg by
2025.xiv Though these averages are weighted by the mix of
vehicles sold, our team agrees with industry leaders in saying that
recent economic trends slightly skew the feasibility of this. Low
oil prices are pushing consumers to purchase larger, less fuel
efficient vehicles. By 2018, the NHSTA will complete midterm
evaluations of these ideal fuel economy standards and decide as to
whether or not they are still feasible given recent trends.
As shown in the graph above, Ford is excelling in fuel economy
as compared to its peers across all time periods. But, most recently
its projected car fuel economy of 27.7 mpg beats its competitors,
GM and Fiat-Chrysler. They have a similar competitive advantage
in truck fuel economy as their projected 20.4 mpg metric is second
behind only Honda.xxxii Our team projects a continued upward
trend in fuel economy for Ford, and we have confidence it can
continue to beat its competitors. As we foresee higher oil prices
and more ride-sharing technology, Ford will see less large-vehicle
sales in the future, allowing them to more easily obtain these EPA
standards.
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S.W.O.T. Analysis
Forecasting Revenues
Strengths:
Ford receives revenues from two major functions: automobile
manufacturing and financing their customer’s purchases of Ford
vehicles. After analyzing historical financial statements we found
that the majority of items are driven by automobile manufacturing
revenues.
Ford’s biggest strength is its control of the domestic truck market.
On the backs of amazing F-150 sales year after year, they only
need to raise margins, which they are doing, in order to add value.
We feel as if their financials are strong, with enough capital
resources to fund promising research and development projects
moving forward. Additionally, their cost-effective inventory and
production measures will only continue to provide them with
flexible production options.
Automotive Revenues:
Ford’s dominance of the American market, can also be seen as its
biggest weakness. Historically, the U.S. economy is very cyclical,
and so is Ford’s performance. When the market performs well,
Ford does too, and vice versa. In addition, Ford needs to work to
increase margins on smaller, more environmentally-friendly
vehicles.
These automotive revenues consist of two key components:
number of cars sold and average realizable value for each car sold.
Since the information was broken down by geographical region,
we believed that our model would be most accurate if we
forecasted these two numbers separately for each region. This
allowed us to fine-tune our model’s growth assumptions for each
geographic region based on our economic, industry, and companyspecific analysis for each location, rather than assigning global
assumptions.
Opportunities:
North America
Weaknesses:
We feel Ford has great opportunities in both the autonomous
space, as well as, the ride-sharing space. With the largest
autonomous fleet and a fully launched ride-sharing experiment,
Ford is attempting to become a first mover into these novel spaces.
Similarly, with strong financials and access to debt markets, Ford
is in a position to potentially partner with new-age technologies as
they come about.
Threats:
The biggest threat to Ford’s future success lies in the regulatory
standards set in place by the EPA and NHSTA. With the majority
of Ford’s margin success lying in the fact that they sell a lot of F150’s, they have little room for error. Worst case scenario lies in
the scenario that automakers, Ford included, would have to stop
offering vehicle choices that don’t make the cut.
Valuation Analysis
Valuation Summary
After our analysis of the economy, industry, and Ford we are
issuing a BUY rating on the Ford Motor Company (F). We arrived
at our target price range, of $16.00-$17.00, by finding the intrinsic
value of the stock using several different valuation techniques.
While we did value Ford several ways, including, Discounted
Cash Flow Model, Dividend Discount Model, relative valuation,
and an Economic Profit Model, we believe that the DCF analysis
allowed us to best represent the opinions we have surrounding the
operations of Ford moving forward. Our models estimate the
intrinsic stock price as of April 18th, 2016.
Our economic outlook for the United States, which makes up the
vast majority of sales in North America, where 65% of global
automobile revenues occur, is positive because of the economic
indicators and conditions that include: 5% unemployment rate, the
Fed’s more dovish stance on interest rate hikes, low oil prices, and
high consumer confidence. These situations, along with our shortterm outlook on the demand for Ford vehicles, and our expectation
that Ford will gain some of Volkswagen’s lost market share
throughout 2016, continue to push car sales upward in 2016 with
a 5% increase in cars sold and 3% increase in the average sales
price (3,227,000 vehicles at an average price of $30,793) for an
8.15% increase in automotive revenues ($99.4 billion).
After another record year for automobile sales in 2016, we believe
that North American automotive revenues will begin to decrease
in 2017 and continue to decrease for the next three years,
decreasing from $99 billion in 2016 to $77 billion in 2020. There
are several reasons for this decrease and they include rising
interest rates, market satiety, and higher oil prices expected to
reach $55-$65 a barrel, all of which put pressure on both
components of automotive revenue: number of cars sold and
average realizable value per vehicle.
We predict additional downward pressure on the U.S. automobile
market due to the increased feasibility of ride-sharing
technologies. This trend isn’t going away, and realizing that, we
believe Ford will feel these impacts like the rest of the market.
However, with increasing organic growth into the space, this
downside can be mitigated.
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We expect the number of vehicles sold in North America to
decrease 2%, 4%, 4%, and 1% in 2017-2020, respectively. While
expecting the average realizable value of each car sold to decrease
1%, 4%, 6%, and 3% during that same time period. This will lower
North American automotive revenues over that time period by 3%,
7.8%, 9.8%, and 4%.
Europe
The European Union accounts for 20% of Ford’s automotive
revenues at $28.1 billion in revenue during 2015. Our outlook for
Ford’s growth in this region are due to the aggressive efforts that
the ECB and central banks are taking to prod growth in the
European Union. One such action that the ECB has taken recently
is to allow banks to borrow from it at negative interest rates, which
make it easier and more profitable for banks to lend to consumers.
We believe that central bank actions like this will outweigh the
political uncertainty that parts of the European Union face in 2016.
Europe, like North America, is also a region that we believe will
see higher vehicle sales than what the GDP data may imply. While
growth on an economy scale is stagnant to slow, consumers are
still better off now than they have been in history. Many European
consumers also benefit from government social-aid programs,
which can help the marginal consumer afford a new vehicle in a
mediocre growth environment.
With our analysis of the European economy and the recent
strength of vehicle sales in Europe, we believe that European
vehicle sales will increase 4%, while prices increase 3% in 2016.
This price increase is sustainable for a longer period of time as we
predict rising oil prices will have a lesser impact on European
revenues because the sales mix is already skewed towards small,
cheap vehicles. This puts overall, automotive revenue growth at
7.12%.
Due to European car sales having not yet recovered to its pre-crisis
numbers, we believe that the European revenues have more room
to grow than North American sales, which are already at recordhighs. With this in mind, along with our economic outlook, and
the ability for Ford to capture market share that was lost by
Volkswagen, we forecast automotive revenues to grow 3%, -1.5%,
1.97%, 4%, and 1% from 2017-21. European automotive revenues
will increase from 28.2B in 2015 to 32.8B in 2021, an increase of
16%.
Asia-Pacific
With the highest growth potential and expectations, Asia-Pacific
is a region where economies are growing at a pace not seen in other
parts of the world. In addition to this growth, these economies are
moving many people into the middle- and upper-classes where
people are more easily able to afford a new car. Asia-Pacific
region GDP is expected to grow at rates much higher than that of
North America and has been doing so for a while.
Source: International Monetary Fundxxxiii
Although Asia-Pacific’s largest economy’s growth is slowing,
China, we expect Asia-Pacific GDP growth rates to be around
6.1% for 2016 and 5.9% throughout our forecast horizon. In
contrast to North America and Europe, we believe that GDP is a
good indicator for the level of automobile sales we can expect to
see in these countries. This is because the higher levels of growth
in the Asia-Pacific region are allowing people in these countries
to have wealth that was previously not present on a massive-scale,
whereas lower GDP growth in Europe and North America are not
pushing people into poverty, but is rather keeping most people
stagnant.
Ford is working on establishing dealerships in other countries too,
such as New Zealand and Vietnam, where Q1 2016 sales rose 30%
and 69%, respectively, over the same quarter one year agoxxxiv,xxxv.
In 2016, we expect Ford to sell 15% more vehicles in Asia-Pacific
than 2015, taking the number of vehicles sold from 1.5 million
vehicles to 1.7 million vehicles. While very small, cheap cars
remain the majority of vehicles sold in China and the rest of the
region, there is a rising demand for Ford SUVs. In Q1 2016, SUV
sales were up 38% compared to Q1 2015. This appetite for larger
cars leads us to believe that Ford will be able to increase their
average realizable value per car 6% in 2016. Together, it is
expected that Asia-Pacific’s automotive revenues will increase
21.9%. In 2015, Asia-Pacific revenues account for 7.65% of
Ford’s automotive revenues and by 2021 we expect this figure to
grow to 13.49%.
Our outlook on the Asia-Pacific region is positive for our entire
forecast horizon. As economies continue to grow, more and more
people will be able to afford new vehicles, boosting Ford’s
revenues. Due to the sheer size of the population, low market
satiety, and economic rise of the region’s consumers we forecast
that automotive revenues will increase $7.8B, or 72.6%, from
2015 to 2021.
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South America
South America only accounts for 4% of revenues and is a weakspot for Ford. With the economies in this region being so closelylinked to commodities, having unstable governments, high
inflation rates (weaker currencies), and increasing interest rates we
believe that this will remain a very weak region over the next six
years for automobile sales. We forecast a down year in revenue to
$4.1B in 2016, down 28% from the previous year. However, we
believe revenues will stagnate around these levels because of a
slight rebound in commodity prices, helping these commodity-rich
economies.



European automotive revenues grow to $33B by 2021,
still $5B less than 2008 revenues.
Asia-Pacific is an emerging geographical region where
many citizens will become the first in their families to be
able to afford a new vehicle. This will be large factor for
Ford’s growth in the region.
Asia-Pacific region will reach $18B in automotive
revenue by 2021, fueled by a large population and their
economic rise.
North America, Europe, and Asia-Pacific regions accounted for
93% of 2015 automotive revenues.
Middle East & Africa
Along with South America, the Middle East & Africa
geographical regions do not have particularly strong and robust
economies where a large portion of the population can afford
vehicles. This is a huge concern for Ford, who prospers from
economies with proportionally-large middle- and upper-classes.
These are the social classes that are the most likely and able to
afford new vehicles.
Ford currently sells very few vehicles in the Middle East & Africa
and does not list any key markets in the area. We believe that
Ford’s sales in these regions are pretty spread out amongst the
countries, with the purchases being made by relatively few people
who are a part of the upper-class. While lower oil prices are
certainly hurting much of the upper-class in these countries, most
of them have not been economically hurt to the point where they
may no longer buy a car. For this reason, coupled with a decent
growth outlook, we believe that the decrease in automotive
revenues for 2016 will only be 3.1%. Over our forecast horizon,
as oil creeps towards $60 per barrel and economic growth returns
to the more historical trend of 3.5-4.5%, we forecast that
automotive revenues will grow 1.85%, 5.06%, 7.06%, 1.92%, and
3.02% from 2017-21. This will cause automotive revenues to
increase from $4.01B in 2015 to $4.67B in 2021, an increase of
16.6%.
Summary of Global Automotive Revenues
Due to the cyclicality of the automobile manufacturing business
we felt that our model should represent our overall outlook for
global growth over our forecast horizon. By breaking down
revenues into geographical regions our growth assumptions were
weighted proportionally to the revenue that Ford earns in each
region. This is imperative because the top three geographical
regions, North America, Europe, and Asia-Pacific are in very
different places for automotive revenues looking forward.


North American revenues, having just set a record for
vehicle sales in 2015, decreases over our forecast horizon
$14B to $78B because of lower truck/SUV sales, higher
interest rates, and market satiety.
European automobile sales have not fully recovered
from the financial crisis, leaving less market satiety risks,
allowing for more growth as the European Union
continues to recover.
Source: Forecasted Financial Statements
Overall, automotive revenues see an increase of 7.16% in 2016,
on steady growth in North America and Europe, and substantial
growth in Asia-Pacific. Ford will then see revenue declines until
2021 to $137B, mostly because of a reversion from the 2015 and
2016 record-breaking sales to our projected long-term annual
automobile sales in North America. This $137B in forecasted
automotive revenue in 2021 is in-line with our three key outlooks
that will effect Ford’s revenues: slow global growth (especially in
North America & Europe), North American revenues coming
down from the peak of an automobile sales cycle, and significant
growth in Asia-Pacific.
Financial Revenues:
The other function that produces substantial revenue for Ford is
their financing arm. When analyzing historical data of financing
revenues we could see that there was a large change in the
proportion of Ford’s total revenues that was produced by the
financing arm when comparing pre- and post-financial crisis
revenues. This decrease was caused by the historically low interest
rates of the past few years causing a narrowing of the spread
between the rate at which Ford Credit can borrow at and the return
on their portfolio of vehicle loans. Therefore, our interest rate
forecasts are instrumental in projecting the financial revenues.
15 | P a g e
Forecasting Automotive Cost of Sales
Automotive cost of sales (COGS) is directly impacted by
automotive revenues, so using a historical average of COGS as a
percentage of automotive revenues and adjusting that rate slightly,
based on our outlook for future expenses, would give us a good
estimate for future COGS. For our forecasts, we started with a
base-rate of 85.84% for our 2016 COGS. The following items are
what we considered when forecasting COGS:
Source: FRED Economic Dataxxxvi
Although interest rates are an important driver of financial
revenues, automotive revenues are the key driver—albeit
indirectly through the balance sheet item, finance receivables. To
forecast the financial revenues, we looked at the historical
financial revenues as a percentage of automotive revenues and as
a percentage of finance receivables. Using both of these historical
ratios together we were able to determine a proper growth rate for
financial revenues that are in-line with our interest rate forecast.




Special incentive programs are charged as a direct
reduction to automotive revenues, not affecting COGS.
R&D is expensed to COGS. Vehicles are also becoming
more technologically advanced every model-year, so we
expect for this cost to continue its rise.
Signed a four year contract with UAW, a union that
covers nearly all of the US employees.
Ford is making operational adjustments and investments
to become more nimble and better-able to cut costs in the
next economic downturn.
Research & development expenses were $6.7B for both 2014 and
2015. Due to a planned three-fold increase in Ford’s autonomous
fleet, research into more fuel efficient vehicles, and continued
research into the “connectivity” technologies, we expect R&D to
increase to $7B in 2016 and reach $8B by 2021.
Employee wages is a significant part of COGS, but not in
comparison to materials and commodity costs which make up
roughly two-thirds of automotive cost of sales. The majority of
high-paying labor expenses are occurred in the United States,
where Ford just signed a four-year contract with the labor union
that covers 99% of its hourly workers. This new contract is
expected to increase U.S. labor costs less than 1.5% per year.
Source: Ford FY 2015 10-K
It was important to the model, and our forecasts, that our financial
revenues as a percentage of total revenues and as a percentage of
finance receivables were in line with the historical ratios from a
time period where interest rates were similar. Due to the nature of
automobile loans being relatively short debt obligations, with a
loan typically being 3-5 years, these ratios should reach 2006-08
levels by 2021.
Source: Ford FY 2015 10-K
What we believe will have the largest impact on automotive cost
of sales is Ford’s stated goal to become more operationally
efficient, “producing at the currently demanded sales mix and
volume profitably”xxxvii. Ford has begun to do this by moving
production of smaller, less profitable vehicles to countries with
low labor costs, such as Mexico and the new $2.5B plant that it is
building there. In addition, much of the growth in automotive sales
will be coming from the Asia-Pacific region, where low cost labor
is prevalent. We believe that these decreases in labor costs will
effectively offset any increases in labor from the U.S. or other
developed nations. Moreover, the quality inventory management
practices currently in place will only become more refined with
time.
With Ford’s recent trend of increasing efficiency and no
foreseeable risks of a significant increase in costs, we forecast that
COGS will be 85.24% of automotive revenues in 2016 and that
Ford will become 0.5% more efficient each year of our time
horizon. Since 2011, this percentage has ranged from 81.54% and
86.61%, so we believe that our forecast for COGS is conservative,
but also accurately reflects our outlook on Ford’s costs. In 2021,
Ford’s cost of automotive sales will be 83.71%, slightly higher
than 2015’s percentage of 82.58%.
16 | P a g e
Capital Expenditures
For forecasting capital expenditures, we used the historical
investing cash flows, managerial guidance, and our outlook for
investments in new opportunities. By 2017, we expect Ford to
have a net PP&E balance of $33B, primarily driven by
investments in emerging opportunities. These emerging
opportunities and investments include: ride-sharing technologies,
autonomous vehicle research, new manufacturing facilities, and
fixed asset improvements.
Weighted Average Cost of Capital Calculation
We calculated Ford’s weight average cost of capital assuming a
capital structure of 7.98% automotive debt, 64.63% financial debt,
and 27.39% equity. We believe that this will stay pretty consistent
as Ford continues to operate. Our model assumes a weighted
average cost of capital of 4.89%.
Cost of Debt:
In order to find Ford’s cost of debt, it was necessary to break their
debt into automotive and financial because of the differing yields
on their bonds. For the automotive cost of debt we were able to
find the yield of a bond that matures on 2/15/2047, the closest bond
with a maturity of the same length as our risk-free rate, 30 years.
The yield on this bond is 6.945% and after adjusting for taxes the
automotive cost of debt is 4.51%.
To find Ford Credit’s cost of debt we looked at companies that
provided similar functions as Ford Credit because they had no
bonds maturing close to 2046. We were able to find a similarlyrated, Morgan Stanley bonds that matured in both 10 and 30 years,
yielding 3.53% and 4.99%, respectively. To calculate Ford
Credit’s cost of debt, we subtracted the equivalent treasury yield
from each Morgan Stanley bond in order to find the additional risk
premium that was attached to the 30-year bond over the 10-year
bond. We found that the additional premium was roughly 0.75%.
This made Ford Credit’s equivalent 30-year yield 5.14% and its
cost of debt 3.34%.
Cost of Equity:
To find Ford’s cost of equity we used the Capital Asset Pricing
Model (CAPM). We found beta using the average of several
different time intervals: one-year weekly, two-year weekly, twoyear monthly, 5-year weekly, and 5-year monthly. Our beta
assumption is 1.3358. Our risk-free rate assumption is 2.56%, the
yield on a 30-year treasury security. To determine the equity risk
premium of 4.57%, we used the normalized earnings equity risk
premium from Aswath Damodaran’s website xxxviii.
Discounted Cash Flows & Economic Profit Models
The models that we believe are the most accurate are our
discounted cash flows and economic profit models. These models
estimate the intrinsic value of Ford’s stock to be the same, $16.44.
Compared to Friday, April 15, 2016 closing price of $13.25 this
gives an upside of 24.1%.
Our forecasts for revenue and expenses are most visible here, with
an increasing value of NOPLAT in the continuing value year of
$6.997B. We have forecasted average free cash flow in the time
horizon equal to $5,119 million per year. This is an increase from
the 2015 FCF of $3,175 million. In our first forecast year, 2016,
our model experiences a negative Economic Profit. This is
primarily due to the vast increase of finance receivables, which
increases our invested capital, thus ultimately decreasing ROIC.
However, the revenues from these receivables hit the income
statement the following year, significantly increasing our revenue
number.
We believe that the both models are intuitive because of what each
model represents. The economic profit model represents the value
that Ford is adding in excess of its opportunity cost of capital.
While the DCF model represents the future free cash flows earned
each year.
Dividend Discount Model
According to the dividend discount model, Ford stock should be
trading at $20.14, an upside of 56%. We believe that the accuracy
of the dividend discount model is not as good as our DCF model
because our dividend growth forecast is based on a relatively small
dividend-paying window as Ford only just began paying a
dividend in 2011 after stopping dividend payments in 2006. We
were, however, able to use management’s outlook on the level of
cash and marketable securities they wanted to maintain to help us
determine the cash available for dividend payments.
Relative Valuation
Relative valuation can be very effective in finding stock price
discrepancies in the short-term, because most industries trade
together on a metric that is important to the industry. In the
automobile manufacturing industry this metric is often price-toearnings and price-to-sales. Sales is an important metric in the
automobile industry because it is very capital-intensive and
reaching economies of scale is important to producing vehicles
efficiently and turning a profit.
Price to Earnings:
Our projected 2016 price on a relative P/E basis was $9.07;
calculated with an average P/E ratio amongst competitors equal to
8.9. As we increased the cost of sales, our forecasted income
decreased, therefore declining our estimated 2016 EPS to $1.02.
We believe this unusually low price target is a function of how we
forecasted income streams compared to other analysts. Our lower
initial expectations had an adverse impact on the relative
valuation. However, we believe EPS will recover throughout the
forecast horizon, making this valuation viable in future analysis.
Price to Sales:
We compared Ford against other automobile companies: Toyota
($252,630M 2016E revenues), Fiat-Chrysler ($115,410M),
General Motors ($153,760M), Volkswagen ($233,970M), and
Honda ($123,000M). The average price-to-sales ratio for the
above industry peers is 0.335. If Ford traded at this valuation, with
2016 revenues estimated at $160,424M, the stock would trade at
17 | P a g e
$13.55. The problem with relative valuation is that the company
gets valued at expectations for the industry as a whole, rather than
looking at its specifics. We believe that Ford should be valued at
a premium to the industry because of its growth opportunities,
knack for disruption, and having the lowest amount of recalls
amongst its major competitorsxx.
Sensitivity Analysis
Beta vs. CV NOPLAT Growth:
By comparing beta to our CV NOPLAT growth, our team suggests
that in good times, in which the market performs well and Ford
experiences cyclical returns, we see marginal downside. With
anywhere between a 0.09 and 0.31 increase in beta, and at least the
same growth of NOPLAT, the stock value lies between $11.12 and
$14.35. This downside risk in the worst case scenario leaves the
value 16.08% below the current trading price. Although the stock
price is highly sensitive to both of these metrics, they also mitigate
each other well. A 10 bps increase in both metrics would leave for
an intrinsic value of $15.17, a 14.49% upside to current price.
%SG&A of Sales vs. %COGS of Sales:
By far our most sensitive metric due to the nature of the tight
margins with which Ford maintains profit, is that of our cost
assumptions. A slight increase of 10 basis points in COGS as a
percent of revenue, our team found that our stock price dropped
approximately 77 cents. However, decreasing the COGS
percentage by 30 bps, ceteris paribus, increased our intrinsic value
to $18.64. The difference between our best case scenario of $21.11
and worst case scenario of $11.67 across all sensitivity tables, lies
directly in Ford’s cost management abilities moving forward.
They actively add value through sensible and lean cost
management practices. As shown in the cells just touching our
target price, we feel that even if cost management strategies falter
moving forward a little bit, there is still substantial upside potential
of approximately 11.77% in a target price of $14.81.
WACC vs. CV ROIC Growth:
As seen in this sensitivity table, our stock price is also highly
determined by the WACC. A 20 bps increase in WACC drops our
intrinsic value to $13.63. Though a dramatic decrease nonetheless,
our team feels as if the rate environment currently surrounding the
market will not be too worrisome moving forward. Moreover, we
saw that with a rise of 40 bps in CV ROIC, our stock price jumped
approximately 32 cents. We found that through the Invested
Capital calculation, which is directly tied to our CV ROIC, the
structure of financing options displays itself widely. This table
shows that offset by continual growth in the organization,
specifically related to their financing assets, Ford can mitigate rate
increases throughout the forecast horizon. A 20 bps increase in
both metrics leaves a target value of $15.17, well above current
trading prices.
%COGS of Sales vs. CV ROIC Growth:
This table is also representative of the impact our COGS
assumption makes on our model. However, we feel this margin
discrepancy can be mitigated best by increased ROIC growth
relative to specific inventory metrics. As shown in the table, in our
worst case scenario of margin loss, ceteris paribus, our stock price
falls to just $14.55, which is still 9.8% current market price.
Moreover, with the highest increase in COGS as a percet of sales,
we found that increasing CV ROIC by just 20 bps lessens our
downside risk by 15 cents a share. As we feel Ford can increase
growth if efficient, both of these risks will be lessened in the
coming years.
WACC vs CV NOPLAT Growth:
In comparing these two metrics, our team was attempting to show
a comparison with the cost of borrowing for the organization and
its flow through sales growth. As our CV NOPLAT number is
pulled directly from our CV year revenue growth, we found that
being able to borrow cheaply as a means to expand sales would
mitigate rate increases. On the upside, a 20 bps increase in
NOPLAT growth, with at least as high of a WACC, would give us
an increased value of $1.91, or approximately 11.62%. On the
downside, an increase of anywhere between 10 and 30 bps in
WACC would leave our target price in the range of $12.33 and
$15.01. However, with expanded operations financed by the
WACC, we forecast a mitigation of the worst-case scenario
downside risk equal to $2.23.
Marginal Tax Rate vs. Equity Risk Premium:
With increased regulatory standards, our team felt it necessary to
compare the market’s returns with the rate by which corporations
are taxed. In Ford’s case, the increase of a tax rate could be
beneficial to their borrowing costs. An increase of 1.00% in the
tax rate would actually raise Ford’s intrinsic stock price by 76
cents, while decreasing this rate would lower it approximately
4.50%. We feel this is strongly backed by their strong debt
leverage, and with an increased tax rate, they feel the after-tax cost
of debt less. Moreover, we found that with a higher ERP of 10 bps,
Ford sees a decrease in value of about 3.53%. The returns in the
market are tied to the sentiment regarding companies, and Ford’s
cyclicality as measured through the ERP has a minimal adverse
effect as this premium flows through their cost of equity. This
higher cost of equity, which may be coupled with increased tax
regulation, actually balances out the value of the stock as
determined by our team.
18 | P a g e
Other Data Sources
Bloomberg Terminalxxxix
FactSetxl
Yahoo Financexli
Important Disclaimer
This report was created by students enrolled in the Security
Analysis (6F:112) class at the University of Iowa. The report was
originally created to offer an internal investment recommendation
for the University of Iowa Krause Fund and its advisory board.
The report also provides potential employers and other interested
parties an example of the students’ skills, knowledge and abilities.
Members of the Krause Fund are not registered investment
advisors, brokers or officially licensed financial professionals. The
investment advice contained in this report does not represent an
offer or solicitation to buy or sell any of the securities mentioned.
Unless otherwise noted, facts and figures included in this report
are from publicly available sources. This report is not a complete
compilation of data, and its accuracy is not guaranteed. From time
to time, the University of Iowa, its faculty, staff, students, or the
Krause Fund may hold a financial interest in the companies
mentioned in this report.
19 | P a g e
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"S&P Capital IQ NetAdvantage." S&P Capital IQ NetAdvantage. N.p.,
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xxi
NHTSA. "SafeCar.gov." Keeping You Safe. Web. 17 Apr. 2016.
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xxii
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xxiii
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Honda Motor Company. Annual Report 20-F (2015).
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iv
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Treasury Constant Maturity Rate [DGS10], retrieved from FRED, Federal
Reserve Bank of St. Louis, April 2, 2016.
v
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retrieved from FRED, Federal Reserve Bank of St. Louis
xxv
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Durable Goods Industries: Transportation Equipment [A36STI], retrieved
from FRED, Federal Reserve Bank of St. Louis
xxvi
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Region (in Million Units)." Statista - The Statistics Portal. Statista. April
2016. Web. 18 Apr 2016.
xxvii
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the 50 Economic Indicators That Really Matter: From Big Macs to "zombie
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Harper Business, 2011. Print.
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Outlook." Bloomberg. Web. 17 Apr. 2016.
xxviii
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First-Quarter Results since 2006. Web. 16 Apr. 2016.
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Web. 17 Apr. 2016.
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Renaud, Erik, and Andrew S. Teufel. Fisher Investments on Consumer
Discretionary. Hoboken, NJ: Wiley, 2010. Print.
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http://www.gm.com/investors/sec-filings.html
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retrieved from FRED, Federal Reserve Bank of St. Louis, April 5, 2016.
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03 Apr. 2016.
xxxii
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Forecasts | FocusEconomics." FocusEconomics. 6 Apr. 2016. Web. 18 Apr.
2016.
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Trends Report." Table 4.2. Web. 17 Apr. 2016.
xxxiii
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Forecasts | FocusEconomics." FocusEconomics. 16 Mar. 2016. Web. 18 Apr.
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Statistics & Forecasts | FocusEconomics." FocusEconomics. 13 Apr. 2016.
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2016. Web. 18 Apr. 2016.
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Loan [TERMCBAUTO48NS], retrieved from FRED, Federal Reserve Bank
of St. Louis
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20 | P a g e
Ford Motor Co.
Key Assumptions of Valuation Model
Ticker Symbol
Current Share Price
Current Model Date
Fiscal Year End
Beta
Equity Risk Premium
10 Year T-Bond
30 Year T-Bond
WACC
CV Growth ROE
CV Growth NOPLAT
CV Growth EPS
CV ROIC
Marginal Tax Rate
Effective Tax Rate
F
$13.25
4/18/2016
Dec. 31
1.34
4.57%
1.75%
2.56%
4.94%
20.22%
2.00%
2.00%
10.81%
35.00%
31.00%
Ford Motor Co.
Revenue Decomposition
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
86,494,000
11.80%
10,847,000
7.60%
27,255,000
5.81%
4,533,000
10,240,000
0.00%
139,369,000
10.11%
82,376,000
-4.76%
8,799,000
-18.88%
29,457,000
8.08%
4,406,000
-2.80%
10,744,000
4.92%
135,782,000
-2.57%
91,870,000
11.53%
5,766,000
-34.47%
28,170,000
-4.37%
4,005,000
-9.10%
10,755,000
0.10%
140,566,000
3.52%
99,357,405
8.15%
4,108,275
-28.75%
30,175,704
7.12%
3,880,845
-3.10%
13,110,345
21.90%
150,632,574
7.16%
96,396,554
-2.98%
3,863,833
-5.95%
31,080,975
3.00%
3,952,641
1.85%
14,452,844
10.24%
149,746,847
-0.59%
88,839,064
-7.84%
3,744,054
-3.10%
30,616,315
-1.50%
4,152,644
5.06%
15,630,751
8.15%
142,982,828
-4.52%
80,168,372
-9.76%
3,780,746
0.98%
31,219,456
1.97%
4,445,821
7.06%
16,904,657
8.15%
136,519,052
-4.52%
76,985,687
-3.97%
3,818,553
1.00%
32,468,234
4.00%
4,531,181
1.92%
17,760,033
5.06%
135,563,688
-0.70%
77,757,469
1.00%
3,856,834
1.00%
32,793,728
1.00%
4,668,022
3.02%
18,567,227
4.54%
137,643,280
1.53%
7,548,000
5.42%
7.95%
8,295,000
6.11%
9.90%
8,992,000
6.40%
8.40%
9,791,117
6.50%
8.89%
11,231,014
7.50%
14.71%
12,153,540
8.50%
8.21%
12,286,715
9.00%
1.10%
12,878,550
9.50%
4.82%
13,764,328
10.00%
6.88%
146,917,000
10.00%
144,077,000
-1.93%
149,558,000
3.80%
160,423,691
7.27%
160,977,861
0.35%
155,136,369
-3.63%
148,805,766
-4.08%
148,442,239
-0.24%
151,407,608
2.00%
3,006
7.97%
538
8.03%
1,317
-2.66%
199
1,270
6,330
11.68%
2,842
-5.46%
463
-13.94%
1,387
5.32%
192
-3.52%
1,439
13.31%
6,323
-0.11%
3,073
8.13%
381
-17.71%
1,530
10.31%
187
-2.60%
1,464
1.74%
6,635
4.93%
3227
5.00%
286
-25.00%
1,591
4.00%
178
-5.00%
1,684
15.00%
6,965
4.97%
3162
-2.00%
271
-5.00%
1,639
3.00%
172
-3.00%
1,785
6.00%
7,029
0.93%
3036
-4.00%
258
-5.00%
1,623
-1.00%
176
2.00%
1,874
5.00%
6,966
-0.91%
2914
-4.00%
255
-1.00%
1,606
-1.00%
186
6.00%
1,968
5.00%
6,930
-0.52%
2885
-1.00%
255
0.00%
1,606
0.00%
194
4.00%
2,027
3.00%
6,967
0.54%
2899
0.50%
257
0.50%
1,614
0.50%
198
2.00%
2,087
3.00%
7,055
1.27%
28,774
3.54%
20,162
-0.40%
20,695
8.70%
22,779
8,063
22,017
-1.40%
28,985
0.73%
19,004
-5.74%
21,238
2.62%
22,948
0.74%
7,466
-7.40%
21,474
-2.47%
29,896
3.14%
15,134
-20.37%
18,412
-13.31%
21,417
-6.67%
7,346
-1.61%
21,186
-1.34%
30,793
3.00%
14,377
-5.00%
18,964
3.00%
21,845
2.00%
7,787
6.00%
21,628
2.09%
30,485
-1.00%
14,233
-1.00%
18,964
0.00%
22,938
5.00%
8,099
4.00%
21,303
-1.50%
29,265
-4.00%
14,518
2.00%
18,869
-0.50%
23,626
3.00%
8,342
3.00%
20,527
-3.64%
27,509
-6.00%
14,808
2.00%
19,435
3.00%
23,862
1.00%
8,592
3.00%
19,701
-4.02%
26,684
-3.00%
14,957
1.00%
20,213
4.00%
23,385
-2.00%
8,764
2.00%
19,458
-1.23%
26,818
0.50%
15,031
0.50%
20,314
0.50%
23,619
1.00%
8,895
1.50%
19,509
0.26%
Revenues (Thousands)
Automotive Revenues
North America
% Change in revenues
South America
% Change in revenues
Europe
% Change in revenues
Middle East & Africa
% Change in revenues
Asia Pacific
% Change in revenues
Total Automotive Revenues
% Change in revenues
Financial Revenues
Revenues
% of Automotive Revenues
% Change in Financial Revenues
TOTAL REVENUES
% Change in Total Revenues
Wholesale Units (Thousands)
North America
% Change in wholesale units
South America
% Change in wholesale units
Europe
% Change in wholesale units
Middle East & Africa
% Change in wholesale units
Asia Pacific
% Change in wholesale units
Total Wholesale Volume
% Change in wholesale units
Average Price
North America
% Change in average price
South America
% Change in average price
Europe
% Change in average price
Middle East & Africa
% Change in average price
Asia Pacific
% Change in average price
Global Average Price
% Change in average price
Ford Motor Co.
Income Statement
In Millions
Fiscal Years Ending Dec. 31
Revenues
Automotive
Financial services
Total revenues
Costs and Expenses
Automotive cost of sales
Depreciation and Amortization
Selling, administrative, and other expenses
Financial services interest expense
Financial services provision for credit and insurance losses
Total costs and expenses
Automotive interest expense
Automotive interest income and other income / (loss), net
Financial services other income / loss, net
Equity in net income / loss of affiliated companies
Income / (loss) before income taxes
Provision for / (benefit from) income taxes
Income / (loss) from continuing operations
Income / (loss) from discontinued operations
Net income / (loss)
Less: Income / (loss) attributable to non-controlling interests
Net income / (loss) attributable to Ford Motor Company
Basic Earnings per Share
Shares Outstanding
Dividends per Share
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
139,369
7,548
146,917
135,782
8,295
144,077
140,566
8,992
149,558
150,633
9,791
160,424
149,747
11,231
160,978
142,983
12,154
155,136
136,519
12,287
148,806
135,564
12,879
148,442
137,643
13,764
151,408
113,646
6,544
10,850
2,860
208
134,108
829
974
348
1,069
14,371
2,425
11,946
11,946
(7)
11,953
117,602
7,423
15,716
2,699
305
143,745
797
76
348
1,275
1,234
4
1,230
1,230
(1)
1,231
116,075
7,966
14,999
2,454
417
141,911
773
1,188
372
1,818
10,252
2,881
7,371
7,371
(2)
7,373
129,298
7,515
16,759
2,880
298
156,750
892
901
362
1,818
5,862
1,817
4,045
127,895
7,994
16,816
2,865
342
155,912
1,154
849
362
1,818
6,939
2,151
4,788
121,507
8,222
16,206
2,848
370
149,154
1,166
875
362
1,818
7,872
2,440
5,431
115,434
8,117
15,545
2,720
374
142,190
1,143
910
362
1,818
8,563
2,655
5,909
114,053
7,971
15,507
2,597
392
140,520
1,117
950
362
1,818
9,934
3,080
6,855
115,224
8,137
15,817
2,579
419
142,175
1,124
1,000
362
1,818
11,288
3,499
7,789
3.04
3,935
0.40
0.31
3,912
0.50
1.86
3,969
0.60
4,045
4,788
5,431
5,909
6,855
7,789
4,045
4,788
5,431
5,909
6,855
7,789
1.014
3,988
0.69
1.195
4,006
0.79
1.350
4,022
0.91
1.463
4,038
1.00
1.691
4,054
1.10
1.915
4,068
1.21
Ford Motor Co.
Balance Sheet
In Millions
Fiscal Years Ending Dec. 31
ASSETS
Cash and cash equivalents
Marketable securities
Finance receivables, net
Automotive receivables, net
Inventories
Other Current Assets
Total Current Assets
Net property
Net intangible assets
Net investment in operating leases
Equity in net assets of affiliated companies
Deferred income taxes
Other assets
Total assets
LIABILITIES
Automotive Payables
Financing Payables
Other liabilities and deferred revenue
Underfunded Pension Liability
Short Term Automotive debt
Short Term Financial services debt
Total Current Liabilities
Long Term Automotive debt
Long Term Financial services debt
Deferred income taxes
Total liabilities
EQUITY
Capital stock
Retained earnings / accumulated deficit
Accumulated other comprehensive income / loss
Treasury stock
Total equity / deficit attributable to Ford Motor Company
Equity / deficit attributable to noncontrolling interests
Total equity / deficit
Total liabilities and equity
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
14,468
22,100
77,481
9,828
7,708
1,034
132,619
27,616
85
19,984
3,679
13,468
4,728
202,179
10,757
20,393
81,111
11,708
7,870
1,347
133,186
30,126
133
23,217
3,357
14,024
4,572
208,615
14,272
20,904
90,691
11,284
8,319
1,851
147,321
30,163
124
27,093
3,224
11,509
5,491
224,925
10,015
23,130
96,530
11,743
8,511
1,442
151,371
32,085
106
27,302
2,862
10,933.55
5,152
229,811
10,987
23,210
95,962
11,674
8,461
1,447
151,741
33,000
106
27,512
2,862
10,386.87
5,170
230,778
13,188
22,368
91,627
11,147
8,079
1,395
147,804
32,579
106
27,724
2,862
9,867.53
4,982
225,924
15,648
21,455
87,485
10,643
7,714
1,338
144,283
31,993
106
27,938
2,862
9,374.15
4,779
221,334
17,676
21,403
86,873
10,568
7,660
1,334
145,514
32,657
106
28,153
2,862
8,905.44
4,767
222,965
20,228
21,830
88,206
10,730
7,777
1,361
150,132
33,310
106
28,370
2,862
8,460.17
4,862
228,102
18,035
1,496
26,024
14,862
1,257
14,994
76,668
14,426
84,011
598
175,703
18,876
1,159
27,850
16,182
2,501
11,138
77,706
11,323
94,209
570
183,808
19,168
1,104
28,663
13,883
1,779
12,123
76,720
11,060
107,892
502
196,174
19,922
1,303
29,179
13,189
1,478
14,325
79,396
15,140
105,060
269
199,865
19,805
1,494
29,704
12,529
1,493
14,241
79,266
15,294
104,442
319
199,321
18,910
1,617
30,239
11,903
1,463
13,598
77,730
14,989
99,725
361
192,805
18,055
1,635
30,783
11,308
1,430
12,983
76,195
14,655
95,217
393
186,459
17,929
1,713
31,337
10,742
1,440
12,892
76,054
14,750
94,550
456
185,810
18,204
1,831
31,901
10,205
1,463
13,090
76,695
14,985
96,001
518
188,198
21,462
23,386
(18,230)
(506)
26,112
364
26,476
202,179
21,129
9,422
(5,265)
(848)
24,438
369
24,807
208,615
21,462
14,414
(6,257)
(977)
28,642
109
28,751
224,925
21,526
15,707
(6,257)
(1,140)
29,837
109
29,946
229,811
21,590
17,317
(6,257)
(1,302)
31,348
109
31,457
230,778
21,653
19,078
(6,257)
(1,465)
33,010
109
33,119
225,924
21,717
20,933
(6,257)
(1,627)
34,766
109
34,875
221,334
21,781
23,312
(6,257)
(1,790)
37,046
109
37,155
222,965
21,845
26,159
(6,257)
(1,952)
39,795
109
39,904
228,102
Ford Motor Co.
Cash Flow Statement
In Millions
Fiscal Years Ending Dec. 31
Cash Flows from Operating Activities:
Net income
Depreciation and tooling amortization
Other amortization
Provision for credit and insurance losses
Pension and OPEB expense
Equity investment earnings / losses in excess of dividends received
Foreign currency adjustments
Net gain / loss on changes in investment securities
Stock compensation
Net change in wholesale and other receivables
Provision for deferred income taxes
Decrease / increase in accounts receivable and other assets
Decrease / increase in inventory
Increase / decrease in accounts payable and accrued and other liabilities
Other
Net cash provided by / used in operating activities
Cash Flows from Investing Activities:
Capital spending
Acquisitions of finance receivables and operating leases
Collections of finance receivables and operating leases
Purchases of marketable securities
Sales and maturities of marketable securities
Proceeds from sales of retail and other finance receivables and operating leases
Other
Settlements of derivatives
Other excluding settlements of derivatives
Net cash provided by / used in investing activities
Cash Flows from Financing Activities:
Cash dividends
Purchases of common stock
Net changes in short-term debt
Proceeds from issuance of other debt
Principal payments on other debt
Other
Effect of exchange rate changes on cash and cash equivalents
Net cash provided by / used in financing activities
Net increase / decrease in cash and cash equivalents from continuing operations
Net increase / decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
10444
2013
14507
2014
16170
2015
11,946
6,504
40
210
(4,930)
(543)
228
113
159
(3,044)
1,585
(1,913)
(437)
1,232
(706)
10,444
1,230
7,385
38
305
4,429
189
825
798
180
(2,208)
(94)
(2,896)
(936)
5,729
(467)
14,507
7,371
7,993
(27)
418
511
(333)
710
(42)
199
(5,090)
2,120
(3,563)
(1,155)
7,758
(700)
16,170
(6,597)
(45,822)
33,966
(119,993)
118,247
495
(27)
(217)
190
(19,731)
(7,463)
(51,673)
36,497
(48,694)
50,264
(55)
281
141
(21,124)
(7,196)
(57,217)
38,130
(41,279)
40,766
634
134
500
(26,162)
(1,574)
(213)
(2,927)
40,543
(27,953)
257
(37)
8,133
(1,952)
(1,964)
(3,870)
40,043
(28,859)
25
(517)
3,423
(2,380)
(129)
1,646
48,860
(33,358)
(317)
(815)
14,322
(1,191)
(1,191)
15,659
14,468
(3,711)
(3,711)
14,468
10,757
3,515
3,515
10,757
14,272
Ford Motor Co.
Cash Flow Statement
In Millions
Fiscal Years Ending Dec. 31
Cash Flows from Operating Activities:
2016E
2017E
2018E
2019E
2020E
CV
2021E
4,045
4,788
5,431
5,909
6,855
7,789
7,515
(233)
575
7,994
49
547
8,222
43
519
8,117
32
493
7,971
63
469
8,137
62
445
(459)
(192)
409
754
199
516
(694)
12,435
69
50
(5)
(117)
192
525
(659)
13,433
527
382
53
(895)
123
535
(626)
14,314
504
365
57
(855)
18
544
(595)
14,589
74
54
3
(126)
79
554
(565)
15,430
(162)
(118)
(27)
275
118
564
(537)
16,547
(2,226)
(5,839)
(9,437)
18
(209)
362
339
(16,991)
(80)
568
(8,910)
(210)
(18)
(8,650)
842
4,335
(7,800)
(212)
188
(2,648)
913
4,142
(7,532)
(214)
203
(2,487)
52
612
(8,635)
(215)
12
(8,174)
(428)
(1,333)
(8,789)
(217)
(95)
(10,861)
Increase/(Decrease) in Short-term Automotive Debt
Increase/(Decrease) in Short-term Financial Services Debt
Increase/(Decrease) in Long-term Automotive Debt
Increase/(Decrease) in Long-term Financial Services Debt
Employee Stock Options Plan
Puirchase of Common Stock
Cash Dividends Paid
Total Cash Provided (Used) by Financing Activities
(301)
2,202
4,080
(2,832)
64
(163)
(2,752)
299
15
(84)
153
(618)
64
(163)
(3,178)
(3,811)
(30)
(643)
(305)
(4,718)
64
(163)
(3,671)
(9,464)
(33)
(615)
(334)
(4,508)
64
(163)
(4,054)
(9,642)
9
(91)
95
(666)
64
(163)
(4,476)
(5,228)
23
198
235
1,450
64
(163)
(4,941)
(3,134)
Total Cash Provided (Used)
Cash at the Beginning of the Year
Cash at the End of the Year
(4,257)
14,272
10,015
972
10,015
10,987
2,202
10,987
13,188
2,460
13,188
15,648
2,028
15,648
17,676
2,551
17,676
20,228
Net income
Adjustments to reconcile net income to cash from Operating Activities:
Add: Depreciation & Amortization Expense
Increase/(Decrease) in Deferred Income Tax Liabilities
(Increase)/Decrease in Deferred Income Tax Assets
Add: Changes in working capital accounts:
(Increase)/Decrease in Automotive Receivables
(Increase)/Decrease in Inventories
(Increase)/Decrease in Other Current Assets
Increase/(Decrease) in Automotive Payables
Increase/(Decrease) in Finance Payables
Increase/(Decrease) in Other Liabilities & Deferred Revenues
Increase/(Decrease) in Underfunded Pension Plan
Total Cash Provided (Used) by Operating Activities
Cash Flows from Investing Activities:
(Increase)/Decrease in Marketable Securities
(Increase)/Decrease in Finance Receivables
Capital Spending
(Increase)/Decrease in Intangible Assets
(Increase)/Decrease in Investments in Operating Leases
(Increase)/Decrease in Equity in Net Assets of Affiliated Companies
(Increase)/Decrease in Other Assets
Total Cash Provided (Used) by Investing Activities
Cash Flows from Financing Activities:
Ford Motor Co.
Common Size Income Statement
Fiscal Years Ending Dec. 31
Revenues
Automotive
Financial services
Total revenues
Costs and Expenses
Automotive cost of sales
Depreciation and Amortization
Selling, administrative, and other expenses
Financial services interest expense
Financial services provision for credit and insurance losses
Total costs and expenses
Automotive interest expense
Automotive interest income and other income / (loss), net
Financial services other income / loss, net
Equity in net income / loss of affiliated companies
Income / (loss) before income taxes
Provision for / (benefit from) income taxes
Income / (loss) from continuing operations
Income / (loss) from discontinued operations
Net income / (loss)
Less: Income / (loss) attributable to non-controlling interests
Net income / (loss) attributable to Ford Motor Company
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
81.54%
4.45%
7.39%
37.89%
2.76%
91.28%
0.59%
0.70%
4.61%
0.73%
9.78%
1.65%
8.13%
0.00%
8.13%
0.00%
8.14%
86.61%
5.15%
10.91%
32.54%
3.68%
99.77%
0.59%
0.06%
4.20%
0.88%
0.86%
0.00%
0.85%
0.00%
0.85%
0.00%
0.85%
82.58%
5.33%
10.03%
27.29%
4.64%
94.89%
0.55%
0.85%
4.14%
1.22%
6.85%
1.93%
4.93%
0.00%
4.93%
0.00%
4.93%
85.84%
4.68%
10.45%
29.42%
3.04%
97.71%
0.59%
0.60%
3.69%
1.13%
3.65%
1.13%
2.52%
0.00%
2.52%
0.00%
2.52%
85.41%
4.97%
10.45%
25.51%
3.04%
96.85%
0.77%
0.57%
3.22%
1.13%
4.31%
1.34%
2.97%
0.00%
2.97%
0.00%
2.97%
84.98%
5.30%
10.45%
23.44%
3.04%
96.14%
0.82%
0.61%
2.98%
1.17%
5.07%
1.57%
3.50%
0.00%
3.50%
0.00%
3.50%
84.56%
5.45%
10.45%
22.14%
3.04%
95.55%
0.84%
0.67%
2.94%
1.22%
5.75%
1.78%
3.97%
0.00%
3.97%
0.00%
3.97%
84.13%
5.37%
10.45%
20.16%
3.04%
94.66%
0.82%
0.70%
2.81%
1.22%
6.69%
2.07%
4.62%
0.00%
4.62%
0.00%
4.62%
83.71%
5.37%
10.45%
18.73%
3.04%
93.90%
0.82%
0.73%
2.63%
1.20%
7.46%
2.31%
5.14%
0.00%
5.14%
0.00%
5.14%
Ford Motor Co.
Common Size Balance Sheet
Fiscal Years Ending Dec. 31
ASSETS
Cash and cash equivalents
Marketable securities
Finance receivables, net
Other receivables, net
Inventories
Other Current Assets
Total Current Assets
Net property
Net intangible assets
Net investment in operating leases
Equity in net assets of affiliated companies
Deferred income taxes
Other assets
Total assets
LIABILITIES
Automotive Payables
Financing Payables
Other liabilities and deferred revenue
Underfunded Pension Liability
Short Term Automotive debt
Short Term Financial services debt
Total Current Liabilities
Long Term Automotive debt
Long Term Financial services debt
Deferred income taxes
Total liabilities
EQUITY
Capital stock
Retained earnings / accumulated deficit
Accumulated other comprehensive income / loss
Treasury stock
Total equity / deficit attributable to Ford Motor Company
Equity / deficit attributable to noncontrolling interests
Total equity / deficit
Total liabilities and equity
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
9.85%
15.04%
1026.51%
7.05%
5.53%
0.70%
90.27%
18.80%
0.06%
14.34%
2.50%
9.17%
3.22%
137.61%
7.47%
14.15%
977.83%
8.62%
5.80%
0.93%
92.44%
20.91%
0.09%
17.10%
2.33%
9.73%
3.17%
144.79%
9.54%
13.98%
1008.57%
8.03%
5.92%
1.24%
98.50%
20.17%
0.08%
19.27%
2.16%
7.70%
3.67%
150.39%
6.24%
14.42%
985.89%
7.80%
5.65%
0.90%
94.36%
20.00%
0.07%
18.12%
1.78%
7.31%
3.21%
143.25%
6.82%
14.42%
854.44%
7.80%
5.65%
0.90%
94.26%
20.50%
0.07%
18.37%
1.78%
6.95%
3.21%
143.36%
8.50%
14.42%
753.92%
7.80%
5.65%
0.90%
95.27%
21.00%
0.07%
19.39%
1.84%
6.60%
3.21%
145.63%
10.52%
14.42%
712.03%
7.80%
5.65%
0.90%
96.96%
21.50%
0.07%
20.46%
1.92%
6.27%
3.21%
148.74%
11.91%
14.42%
674.56%
7.80%
5.65%
0.90%
98.03%
22.00%
0.07%
20.77%
1.93%
5.95%
3.21%
150.20%
13.36%
14.42%
640.83%
7.80%
5.65%
0.90%
99.16%
22.00%
0.07%
20.61%
1.89%
5.66%
3.21%
150.65%
12.94%
19.82%
18.67%
10.66%
0.90%
198.65%
52.18%
10.35%
1113.02%
0.41%
119.59%
13.90%
13.97%
20.51%
11.92%
1.84%
134.27%
53.93%
8.34%
1135.73%
0.40%
127.58%
13.64%
12.28%
20.39%
9.88%
1.27%
134.82%
51.30%
7.87%
1199.87%
0.34%
131.17%
13.23%
13.30%
19.37%
8.76%
0.98%
146.31%
49.49%
10.05%
1073.01%
0.17%
124.59%
13.23%
13.30%
19.84%
8.37%
1.00%
126.80%
49.24%
10.21%
929.95%
0.20%
123.82%
13.23%
13.30%
21.15%
8.32%
1.02%
111.88%
50.10%
10.48%
820.54%
0.23%
124.28%
13.23%
13.30%
22.55%
8.28%
1.05%
105.67%
51.20%
10.73%
774.96%
0.26%
125.30%
13.23%
13.30%
23.12%
7.92%
1.06%
100.11%
51.23%
10.88%
734.17%
0.31%
125.17%
13.23%
13.30%
23.18%
7.41%
1.06%
95.10%
50.65%
10.89%
697.46%
0.34%
124.30%
14.61%
15.92%
-12.41%
-0.34%
17.77%
0.25%
18.02%
137.61%
14.67%
6.54%
-3.65%
-0.59%
16.96%
0.26%
17.22%
144.79%
14.35%
9.64%
-4.18%
-0.65%
19.15%
0.07%
19.22%
150.39%
13.42%
9.79%
-3.90%
-0.71%
18.60%
0.07%
18.67%
143.25%
13.41%
10.76%
-3.89%
-0.81%
19.47%
0.07%
19.54%
143.36%
13.96%
12.30%
-4.03%
-0.94%
21.28%
0.07%
21.35%
145.63%
14.59%
14.07%
-4.20%
-1.09%
23.36%
0.07%
23.44%
148.74%
14.67%
15.70%
-4.22%
-1.21%
24.96%
0.07%
25.03%
150.20%
14.43%
17.28%
-4.13%
-1.29%
26.28%
0.07%
26.36%
150.65%
Ford Motor Co.
Value Driver Estimation
In Millions
Fiscal Years Ending Dec. 31
ASSUMPTIONS:
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
34.90%
4.94%
7.50%
4.51%
51,600
38.30%
4.94%
7.50%
4.51%
46,200
34.00%
4.94%
7.50%
4.51%
53,700
35.00%
4.94%
7.50%
4.51%
50,675
35.00%
4.94%
7.50%
4.51%
50,675
35.00%
4.94%
7.50%
4.51%
50,675
35.00%
4.94%
7.50%
4.51%
50,675
35.00%
4.94%
7.50%
4.51%
50,675
35.00%
4.94%
7.50%
4.51%
50,675
Automotive Revenues
Financial Revenues
139,369
7,548
135,782
8,295
140,566
8,992
150,633
9,791
149,747
11,231
142,983
12,154
136,519
12,287
135,564
12,879
137,643
13,764
Total Revenues
Automotive Costs of Sales
Depreciation and Amortization
Selling, General, and Administrative
Financial Services Interest Expense
Financial Services provision for credit/insurance losses
Total Operating Expenses
Plus: Implied Interest on Op. Leases
EBITA
Adjusted Taxes:
Provision for/ (Benefit from) Income Taxes
Plus: Tax shield on automotive interest expense
Plus: Tax shield on Goodwill impariment
Less: Tax on automotive investment income
Less: Tax on other financial services income
146,917
113,646
6,544
10,850
2,860
208
134,108
40
12,849
144,077
117,602
7,423
15,716
2,699
305
143,745
36
368
149,558
116,075
7,966
14,999
2,454
417
141,911
33
7,680
160,424
129,298
7,515
16,759
2,880
298
156,750
34
3,708
160,978
127,895
7,994
16,816
2,865
342
155,912
37
5,102
155,136
121,507
8,222
16,206
2,848
370
149,154
38
6,020
148,806
115,434
8,117
15,545
2,720
374
142,190
37
6,653
148,442
114,053
7,971
15,507
2,597
392
140,520
36
7,958
151,408
115,224
8,137
15,817
2,579
419
142,175
37
9,270
Marginal Tax Rate
WACC
Normal Cash (% of Sales)
Cost of Debt
Amount of Securitized Financial Receivables
NOPLAT CALCULATION
Less: Tax on equity in net income of affiliates
Less: Total Adjusted Taxes
Plus: Change in Deferred Taxes
NOPLAT
INVESTED CAPITAL CALCULATION
Operating Current Assets:
Normal Cash
Finance Receivables, net
Other Receivables, net
Inventories
Other Current Assets
Total Op. CA
Operating Current Liabilities:
Automotive Payables
Financing Payables
Other Liabilities and deferred revenue
ST Financing Debt
Total Op. CL
Net Operating Working Capital
Plus: Net PP&E
Plus: PV of Operating Leases
Plus: Net Investment in Operating Leases
Plus: Net Other Op Assets
Plus: Net Intangibles
INVESTED CAPITAL
2,425
289
0
340
121
373
1,880
1,845
12,814
4
305
0
29
133
2,881
263
0
404
126
1,817
312
0
315
127
2,151
404
0
297
127
2,440
408
0
306
127
2,655
400
0
319
127
3,080
391
0
332
127
3,499
394
0
350
127
488
(341)
(584)
125
618
1,995
2,447
8,132
636
1,051
343
2,999
636
1,495
596
4,203
636
1,779
562
4,803
636
1,973
525
5,205
636
2,375
532
6,115
636
2,780
507
6,997
11,019
25,881
9,828
7,708
1,034
55,470
10,757
34,911
11,708
7,870
1,347
66,593
11,217
36,991
11,284
8,319
1,851
69,662
10,015
45,855
11,743
8,511
1,442
77,566
10,987
45,287
11,674
8,461
1,447
77,856
11,635
40,952
11,147
8,079
1,395
73,208
11,160
36,810
10,643
7,714
1,338
67,665
11,133
36,198
10,568
7,660
1,334
66,894
11,356
37,531
10,730
7,777
1,361
68,755
18,035
1,496
26,024
14,994
60,549
(5,079)
27,616
796
19,984
18,876
1,159
27,850
11,138
59,023
7,570
30,126
741
23,217
19,168
1,104
28,663
12,123
61,058
8,604
30,163
760
27,093
19,922
1,303
29,179
14,325
64,729
12,837
32,085
809
27,302
19,805
1,494
29,704
14,241
65,244
12,611
33,000
832
27,512
18,910
1,617
30,239
13,598
64,364
8,844
32,579
821
27,724
18,055
1,635
30,783
12,983
63,456
4,209
31,993
806
27,938
17,929
1,713
31,337
12,892
63,872
3,022
32,657
823
28,153
18,204
1,831
31,901
13,090
65,027
3,728
33,310
840
28,370
85
43,402
133
61,787
124
66,744
106
73,138
106
74,062
106
70,074
106
65,052
106
64,761
106
66,353
12,814
30,611
41.86%
125
43,402
0.29%
8,132
61,787
13.16%
2,999
66,744
4.49%
4,203
73,138
5.75%
4,803
74,062
6.49%
5,205
70,074
7.43%
6,115
65,052
9.40%
6,997
64,761
10.81%
30,611
41.86%
4.94%
11,301
43,402
0.29%
4.94%
(2,020)
61,787
13.16%
4.94%
5,078
66,744
4.49%
4.94%
(300)
73,138
5.75%
4.94%
588
74,062
6.49%
4.94%
1,142
70,074
7.43%
4.94%
1,741
65,052
9.40%
4.94%
2,899
64,761
10.81%
4.94%
3,796
12,814
12,791
24
125
18,385
(18,260)
8,132
4,957
3,175
2,999
6,394
(3,394)
4,203
924
3,279
4,803
(3,988)
8,791
5,205
(5,022)
10,227
6,115
(291)
6,406
6,997
1,592
5,405
VALUE DRIVERS:
ROIC Calculation: NOPLAT/Beg. IC
NOPLAT
Beginning Invested Capital
ROIC
EP Calculation: Beg. IC*(ROIC-WACC)
Beginning Invested Capital
ROIC
WACC
Economic Profit
FCF Calculation: NOPLAT - CAPEX
NOPLAT
CAPEX (Ending IC - Beginning IC)
FCF
Ford Motor Co.
Weighted Average Cost of Capital (WACC) Estimation
Cost of Equity (re)
Risk-free rate (30 yr T-Bond)
Risk Premium
Beta
Cost of Equity
2.5600%
4.57%
1.3358
8.665%
Cost of Debt (rd)
Ford Motor 30 Yr. Bond YTM (02
Ford Credit Cost of Debt
Marginal Tax Rate
Automotive AT Cost of Debt
Financial AT Cost of Debt
Total Equity
# of Shares
Share Price
Total Debt
Fair Value Automotive
PV Operating Leases
Fair Value Financial
Total Value
Weight of Equity
* Cost of Equity
Weight of Automotive Debt
* Automotive AT Cost of Debt
Weight of Financial Debt
* Financial AT Cost of Debt
WACC
6.945%
5.20%
35%
4.514%
3.381%
$52,589.25
3,969.00
$13.25
$ 136,129.35
14,199.00
760.35
121,170.00
$188,718.60
27.866%
8.665%
7.927%
4.514%
64.207%
3.381%
4.943%
Ford Cred Bond Matures on (8/04/2026)
- 10 Year Treasury
+ 30 Year Treasury
+ Maturity Default Risk Premium
FC Cost of Debt
3.64%
1.75%
2.56%
0.75%
5.20%
Ford Motor Co.
Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models
Key Inputs:
CV Growth
CV ROIC
WACC
Cost of Equity
2.00%
10.81%
4.94%
8.66%
Fiscal Years Ending Dec. 31
2015
CV
2021E
2016E
2017E
2018E
2019E
2020E
NOPLAT
ROIC
CAPEX (Change in IC)
Free Cash Flow
Continuing Value
2,999
4.49%
6,394
(3,394)
4,203
5.75%
924
3,279
4,803
6.49%
(3,988)
8,791
5,205
7.43%
(5,022)
10,227
6,115
9.40%
(291)
6,406
6,997
10.81%
1,592
5,405
193,656
CF to Discount
Periods to Discount
PV of Free Cash Flows
(3,394)
1
(3,234)
3,279
2
2,977
8,791
3
7,606
10,227
4
8,432
6,406
5
5,033
193,656
5
152,147
(300)
588
1,142
1,741
2,899
1
(300)
(286)
2
588
534
3
1,142
988
4
1,741
1,436
5
2,899
2,278
3,796
128,895
5
128,895
101,268
Discounted Cash Flow Model
PV of Operating Assets
Excess Cash
Marketable securities
Equity in net assets of affiliated companies
Short Term Automotive debt
Long Term Automotive debt
Long Term Financial services debt
PV of Operating Leases
Underfunded Pension
Employee Stock Options Plan
Equity attributable to non-controlling interest
Value of Equity
Shares Outstanding
Intrinsic Stock Price as of 12/31/15
172,962
3,055
20,904
3,224
(1,779)
(11,060)
(107,892)
(760)
(13,883)
(193)
(109)
64,468
3,969
$
16.24
Economic Profit Model
Economic Profit
Continuing Value
Periods to Discount
CF to Discount
PV of Cash Flows
PV of Economic Profit
Plus: Beginning IC
PV of Operating Assets
Excess Cash
Marketable securities
Equity in net assets of affiliated companies
Short Term Automotive debt
Long Term Automotive debt
Long Term Financial services debt
PV of Operating Leases
Underfunded Pension
Employee Stock Options Plan
Equity attributable to non-controlling interest
Value of Equity
Shares Outstanding
Intrinsic Stok Price as of 12/31/15
Intrinsic Stock Price as of 12/31/15
R*e
Elapsed Fraction
Adjusted Stock Price as of 4/18/2016
$
$
$
106,217
66,744
172,962
3,055
20,904
3,224
(1,779)
(11,060)
(107,892)
(760)
(13,883)
(193)
(109)
64,468
3,969
16.24
16.24
4.14%
0.298
16.44
Ford Motor Co.
Dividend Discount Model (DDM) or Fundamental P/E Valuation Model
Fiscal Years Ending Dec. 31
EPS
Key Assumptions
CV growth
CV ROE
Cost of Equity
2017E
2018E
2019E
2020E
CV
2021E
1.01
1.20
1.35
1.46
1.69
1.91
1.10
1.10
5
0.73
13.52
1.91
25.88
1.21
25.88
5
17.08
2.00%
20.22%
8.66%
Future Cash Flows
P/E Multiple (CV Year)
EPS (CV Year)
Future Stock Price
Dividends Per Share
Future Cash Flows
Periods to Discount
Discounted Cash Flows
Intrinsic Value as of 12/31/15
R*e
Elapsed Fraction
Adjusted Stock Price (4/18/16)
2016E
0.69
0.69
1
0.63
$
$
19.91
4.14%
0.298
20.15
0.79
0.79
2
0.67
0.91
0.91
3
0.71
1.00
1.00
4
0.72
Ford Motor Co.
Relative Valuation Models
Ticker
TM
FCAU
GM
VLKAY
HMC
Company
Toyota
Fiat-Chrysler
General Mortors
Volkswagen
Honda
EPS
2016E
$13.32
$1.33
$5.48
$2.15
$2.28
Price
$103.36
$7.76
$31.31
$28.31
$27.88
EPS
2017E
$13.66
$1.67
$5.74
$2.15
$2.94
Average
F
Ford Motor Co.
Implied Value:
Relative P/E (EPS16)
Relative P/E (EPS17)
Relative P/S (Est16)
Relative P/S (Est17)
$1.01
$13.25
$
$
$
$
9.07
9.64
13.97
13.68
$1.20
P/E 16
7.8
5.8
5.7
13.2
12.2
P/E 17
7.6
4.6
5.5
13.2
9.5
8.9
8.1
13.1
11.1
Sales
2016E
252,630
115,410
153,760
233,970
123,000
160,424
Sales
2017E
266,080
120,410
152,050
231,170
127,040
160,978
Shares
Outstanding
1,540
1,290
1,550
2,380
1,800
3,969
P/S 16
0.630
0.087
0.316
0.288
0.408
P/S 17
0.598
0.083
0.319
0.291
0.395
0.346
0.337
0.328
0.327
Ford Motor Co.
Key Management Ratios
Fiscal Years Ending Dec. 31
2013
2014
2015
2016E
2017E
2018E
2019E
2020E
CV
2021E
1.73
1.63
0.48
1.71
1.61
0.40
1.92
1.81
0.46
1.91
1.80
0.42
1.91
1.81
0.43
1.90
1.80
0.46
1.89
1.79
0.49
1.91
1.81
0.51
1.96
1.86
0.55
15.08
1.74
0.75
15.10
1.60
0.70
14.34
1.54
0.69
15.36
1.53
0.71
15.07
1.49
0.70
14.69
1.47
0.68
14.62
1.48
0.67
14.84
1.52
0.67
14.93
1.54
0.67
86.82% 103.33%
0.87
0.87
2.65
2.02
98.64%
0.86
2.35
90.73%
0.85
2.45
83.35%
0.84
2.49
78.27%
0.83
2.57
74.02%
0.83
2.64
Liquidity Ratios
Current Ratio
Quick Ratio
Cash Ratio
Current Assets/Current Liabilities
(CA - Inventories)/CL
(Cash + Marketable Sec)/CL
Activity or Asset-Management Ratios
Automotive Inventory Turnover
Receivables Turnover
Total Asset Turnover
Automotive Cost of Sales/Avg. Inventory
Sales/Avg. A/R
Sales/Avg. Total Assets
Financial Leverage Ratios
Debt to Equity Ratio (X LT Fin Debt)
Debt Ratio
Interest Coverage Ratio
Total Debt/Shareholder's Equity
Total Liabilities/Total Assets
Operating Income/Interest Expense
Profitability Ratios
Automotive Gross Profit Margin
Return on Equity Ratio
Return on Assets
Cash Flow Margin
(Auto Rev - Auto COS)/Auto Rev
Net Income/Beg. Shareholders Equity
Net Income/Beg. Total Assets
Net Op. Cash Flow/Auto Rev
18.46%
73.28%
6.31%
7.49%
13.39%
4.65%
0.61%
10.68%
17.42%
29.72%
3.53%
11.50%
14.16%
14.07%
1.80%
8.25%
14.59%
15.99%
2.08%
8.97%
15.02%
17.27%
2.35%
10.01%
15.44%
17.84%
2.62%
10.69%
15.87%
19.66%
3.10%
11.38%
16.29%
20.96%
3.49%
12.02%
Payout Policy Ratios
Payout Ratio
Dividend Coverage Ratio
Dividends Per Share/EPS
EPS/Dividents Per Share
13.16% 161.29%
7.60
0.62
32.26%
3.10
68.03%
1.47
66.38%
1.51
67.58%
1.48
68.61%
1.46
65.30%
1.53
63.44%
1.58
115.87% 100.62%
0.87
0.88
5.28
83.00
Beta
$
CV NOPLAT Growth
$
SG&A as a % of Sales
$
WACC
16.44
1.70%
1.80%
1.90%
2.00%
2.10%
2.20%
2.30%
16.44
10.15%
10.25%
10.35%
10.45%
10.55%
10.65%
10.75%
16.44
4.64%
4.74%
4.84%
4.94%
5.04%
5.14%
5.24%
$
$
$
$
$
$
$
1.05
19.40
20.42
21.52
22.68
23.99
25.37
26.89
$
$
$
$
$
$
$
85.54%
21.11
20.28
19.44
18.64
17.78
16.94
16.11
$
$
$
$
$
$
$
10.21%
21.00
19.20
17.53
15.93
14.52
13.15
11.87
$
$
$
$
$
$
$
1.15
17.39
18.30
19.28
20.31
21.46
22.69
24.01
$
$
$
$
$
$
$
85.64%
20.37
19.53
18.70
17.90
17.04
16.20
15.37
$
$
$
$
$
$
$
10.41%
21.20
19.40
17.72
16.11
14.69
13.32
12.03
$
$
$
$
$
$
$
1.25
15.54
16.36
17.23
18.15
19.17
20.25
21.42
$
$
$
$
$
$
$
85.74%
19.63
18.79
17.96
17.16
16.29
15.46
14.63
COGS as a % of Sales
85.84%
85.94%
$ 18.91 $ 18.14
$ 18.08 $ 17.31
$ 17.24 $ 16.48
$ 16.44 $ 15.67
$ 15.58 $ 14.81
$ 14.74 $ 13.98
$ 13.91 $ 13.15
$
$
$
$
$
$
$
10.61%
21.40
19.58
17.90
16.28
14.85
13.48
12.19
CV ROIC Growth
10.81%
11.01%
$ 21.58 $ 21.77
$ 19.76 $ 19.94
$ 18.06 $ 18.24
$ 16.44 $ 16.60
$ 15.01 $ 15.17
$ 13.63 $ 13.78
$ 12.33 $ 12.48
$
$
$
$
$
$
$
1.34
14.07
14.82
15.61
16.44
17.37
18.35
19.39
$
$
$
$
$
$
$
1.45
12.25
12.92
13.62
14.35
15.17
16.02
16.94
$
$
$
$
$
$
$
1.55
10.78
11.38
12.02
12.67
13.41
14.17
14.99
$
$
$
$
$
$
$
86.04%
17.40
16.57
15.73
14.93
14.07
13.24
12.40
$
$
$
$
$
$
$
11.21%
21.94
20.10
18.40
16.76
15.32
13.92
12.62
$
$
$
$
$
$
$
1.65
9.41
9.96
10.53
11.12
11.78
12.46
13.19
$
$
$
$
$
$
$
86.14%
16.66
15.83
14.99
14.19
13.33
12.50
11.67
$
$
$
$
$
$
$
11.41%
22.11
20.26
18.55
16.91
15.46
14.06
12.75
$
COGS as a % of Sales
$
CV NOPLAT Growth
$
Marginal Tax Rate
16.44
85.54%
85.64%
85.74%
85.84%
85.94%
86.04%
86.14%
16.44
1.70%
1.80%
1.90%
2.00%
2.10%
2.20%
2.30%
16.44
32.00%
33.00%
34.00%
35.00%
36.00%
37.00%
38.00%
$
$
$
$
$
$
$
10.21%
17.76
17.14
16.52
15.93
15.29
14.67
14.05
$
$
$
$
$
$
$
4.64%
18.47
19.44
20.49
21.58
22.82
24.13
25.55
$
$
$
$
$
$
$
4.27%
15.87
16.62
17.39
18.19
19.00
19.84
20.70
$
$
$
$
$
$
$
10.41%
17.94
17.32
16.70
16.11
15.47
14.85
14.23
$
$
$
$
$
$
$
4.74%
16.92
17.81
18.76
19.76
20.88
22.07
23.35
$
$
$
$
$
$
$
4.37%
15.33
16.06
16.82
17.59
18.38
19.20
20.04
CV ROIC Growth
10.81%
11.01%
$ 18.29 $ 18.46
$ 17.67 $ 17.84
$ 17.04 $ 17.21
$ 16.44 $ 16.60
$ 15.79 $ 15.96
$ 15.17 $ 15.33
$ 14.55 $ 14.70
$
$
$
$
$
$
$
11.21%
18.62
17.99
17.37
16.76
16.11
15.48
14.85
$
$
$
$
$
$
$
11.41%
18.78
18.15
17.52
16.91
16.25
15.62
14.99
$
$
$
$
$
$
$
10.61%
18.12
17.50
16.88
16.28
15.64
15.01
14.39
$
$
$
$
$
$
$
4.84%
15.47
16.29
17.16
18.06
19.09
20.16
21.32
WACC
4.94%
$ 14.07
$ 14.82
$ 15.61
$ 16.44
$ 17.37
$ 18.35
$ 19.39
5.04%
12.83
13.52
14.25
15.01
15.86
16.75
17.71
$
$
$
$
$
$
$
5.14%
11.62
12.26
12.93
13.63
14.41
15.22
16.09
$
$
$
$
$
$
$
5.24%
10.48
11.07
11.69
12.33
13.05
13.79
14.59
$
$
$
$
$
$
$
4.47%
14.80
15.51
16.25
17.01
17.78
18.58
19.40
Equity Risk Premium
4.57%
4.67%
$ 14.28 $ 13.77
$ 14.98 $ 14.46
$ 15.70 $ 15.16
$ 16.44 $ 15.89
$ 17.20 $ 16.63
$ 17.98 $ 17.39
$ 18.78 $ 18.18
$
$
$
$
$
$
$
4.77%
13.27
13.95
14.64
15.35
16.07
16.82
17.58
$
$
$
$
$
$
$
4.87%
12.79
13.45
14.13
14.82
15.53
16.26
17.01
$
$
$
$
$
$
$
Present Value of Operating Lease Obligations (2015)
Fiscal Years Ending Dec. 31
2016
2017
2018
2019
2020
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Operating
Leases
275
188
188
89
89
80
909
149
760
Present Value of Operating Lease Obligations (2014)
Fiscal Years Ending Dec. 31
2015
2016
2017
2018
2019
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Operating
Leases
268
189
189
78
78
83
885
144
741
Present Value of Operating Lease Obligations (2013)
Fiscal Years Ending
2014
2015
2016
2017
2018
Thereafter
Total Minimum Payments
Less: Interest
PV of Minimum Payments
Operating
Leases
246
189
189
99
99
152
974
178
796
Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding
Number of Options Outstanding (shares):
Average Time to Maturity (years):
Expected Annual Number of Options Exercised:
Current Average Strike Price:
Cost of Equity:
Current Stock Price:
45,400,000
7.00
6,485,714
$
9.83
8.66%
$13.25
2016E
4,022,393,846
6,485,714
(9,558,135)
4,038,437,695
6,485,714
9.83 $
63,754,571
CV
2021E
-162,500,000
-162,500,000
-162,500,000
-162,500,000
-162,500,000
-162,500,000
$
13.25 $
14.40 $
15.65 $
17.00 $
18.47 $
20.08
(12,264,151)
(11,286,242)
(10,386,310)
(9,558,135)
(8,795,997)
(8,094,629)
4,005,521,822
6,485,714
(10,386,310)
4,022,393,846
6,485,714
9.83 $
63,754,571
2020E
Change in Treasury Stock
Expected Price of Repurchased Shares:
Number of Shares Repurchased:
3,987,749,865
6,485,714
(11,286,242)
4,005,521,822
6,485,714
9.83 $
63,754,571
2019E
$
3,969,000,000
6,485,714
(12,264,151)
3,987,749,865
6,485,714
9.83 $
63,754,571
2018E
Increase in Shares Outstanding:
Average Strike Price:
Increase in Common Stock Account:
Shares Outstanding (beginning of the year)
Plus: Shares Issued Through ESOP
Less: Shares Repurchased in Treasury
Shares Outstanding (end of the year)
6,485,714
9.83 $
63,754,571
2017E
4,038,437,695
6,485,714
(8,795,997)
4,053,719,406
6,485,714
9.83
63,754,571
4,053,719,406
6,485,714
(8,094,629)
4,068,299,749
VALUATION OF OPTIONS GRANTED IN ESOP
Ticker Symbol
Current Stock Price
Risk Free Rate
Current Dividend Yield
Annualized St. Dev. of Stock Returns
Range of
Outstanding Options
Range 1
Total
F
$13.25
2.56%
4.53%
38.80%
Average
Average
Number
Exercise Remaining
of Shares
Price
Life (yrs)
45,400,000
9.83
7.00 $
45,400,000 $
9.83
7.00 $
B-S
Option
Price
4.26 $
6.95 $
Value
of Options
Granted
193,406,203
193,406,203