Ford Motor Company (NYSE:F) just posted a somewhat disappointing third-quarter result, initially sending the stock down about 10%. High costs, supplier problems, increasing uncertainty and warranty costs all weighed on results.
However, is there any upside to owning the stock right now, when the stock is priced at just eleven times its price-to-earnings ratio and offers a robust 5.2% dividend yield?
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Ford’s third quarter wasn’t all bad: Sales rose 5% to $46 billion, marking its 10th consecutive quarter of year-over-year sales growth. Net profit fell $0.3 billion to $0.9 billion due to a previously announced $1 billion electric vehicle (EV) levy. Adjusted earnings before interest and taxes, or EBIT, rose $352 million to $2.6 billion, driven by higher volume and a more profitable sales mix.
Although adjusted earnings per share in the third quarter were in line with analyst estimates, the results were disappointing. That said, there are certainly gains to be made in Ford stock at this level, as three things could dramatically improve: the losses in the EV division, model-e, subscriptions in the commercial Ford Pro division and falling warranty and general costs.
Ford Pro, once again Ford’s commercial division, has been a bright spot for the automaker in 2024. In fact, through the first nine months of 2024, Ford Pro generated $7.4 billion in EBIT with a margin of 14.6%. That compares favorably with the traditional Ford Blue business, which generated EBIT of $3.7 billion with a 5% margin in the same period.
The advantage of Ford Pro, in addition to the in-demand Super Duty and Transit vehicles, is its software subscriptions and fleet services. Paid subscriptions to Ford Pro Intelligence rose 30% to nearly 630,000 in the third quarter, and repair orders completed by the company grew 70%. For investors, it’s important to note that Ford Pro’s high margins are partly due to these lucrative software and services subscriptions.
Digital services and subscriptions is a market that is expected to grow significantly over the next decade, and while Ford Pro customers are more likely to embrace the services and subscriptions, this will ultimately trickle down to technology and subscriptions for mainstream consumers, hurting Ford Blue margins will help increase the future. .
There is also upside potential in the company’s Model-e EV division, despite losses of $1.2 billion in the third quarter alone, and about $3.7 billion in the first nine months of 2024. This upside is simply addition by subtraction, as scale and battery costs improve.
