Ford’s Unexpected Growth Story: Is This Catalyst Enough to Make the Stock a Buy?

Ford’s Unexpected Growth Story: Is This Catalyst Enough to Make the Stock a Buy?

When you think about investing in Ford Motor Company (NYSE:F) and its stories of potential growth, it’s easy to increase its dividend or its dominance in high-value trucks and SUVs, or perhaps even its potential in electric vehicles (EVs).

These are all good points, but, surprisingly to many, Ford’s most compelling growth story might come from Ford Pro, its solution aimed at commercial customers – here’s why.

Compare the bases

Ironically, given that more than a decade ago most commercial sales were considered low margin and a black eye for Detroit automakers, it is Ford Pro’s commercial business that is seeing growth faster and with better margins.

Let’s throw out some numbers for investors. Ford Blue, essentially the company’s traditional gasoline vehicle business, is definitely in good health, bringing in nearly $7.5 billion in profit before interest and taxes (EBIT) in 2023 with an industry-respectable EBIT margin of 7.3%. But Ford Pro is expected to overtake Ford Blue fairly quickly, generating EBIT of $7.2 billion in 2023 with a much healthier EBIT margin of 12.4%.

Here’s the kicker: Ford Pro is growing rapidly. While Ford Blue’s revenue grew by 8% in 2023, Ford Pro’s revenue grew by 19% in the same period compared to the previous year, and its EBIT by 7.2 billion dollars was more than double its 2022 level, or more than double! In other words, Ford Blue’s 2023 EBIT of $7.5 billion is up just $615 million from the previous year, while Ford Pro’s is up $4 billion of dollars.

What makes the Ford Pro tick?

To be fair, Ford Pro benefits from the 2023 launches of the division’s major vehicle franchises: the all-new Super Duty trucks, which are selling well in North America, and the Transit Custom vans, which are selling very well in Europe.

Another driving force behind Ford Pro is often overlooked: its software subscriptions and mobile repairs. In fact, during the fourth quarter of 2023, Ford’s software subscriptions jumped 50% from the previous year and mobile repair orders more than doubled.

Management also expects Ford Pro’s EBIT margins to reach around 15% by around 2026, which is a much more lucrative margin than its core Ford Blue business, which historically ranges between 5 and 10 %.

Is Ford a Buy?

Investors can make a pretty compelling investment case for Ford right now. The stock trades at a modest 11.8 times earnings and boasts not only a steady dividend yield of almost 5%, but often additional annual dividends as icing on the cake.

Additionally, as Ford Pro continues its rapid, more profitable growth, the company’s bottom line will improve – and its full-size truck and SUV businesses remain healthy.

Another reason why investing in Ford makes sense is that its early transition to electric vehicles has been brutal, with a loss of $4.7 billion in 2023. But as Ford slowly turns this business around over the next few years, assuming production capacity increases, demand for electric vehicles increases and costs come down, it will be a huge boost to the bottom. double.

All these reasons make Ford a must buy right now. The only problem is that historically, even when Ford makes substantial improvements to its financial results, the stock price can remain sluggish. Maybe this time around, savvy investors will appreciate Ford’s smart moves.

Should you invest $1,000 in Ford Motor Company right now?

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Daniel Miller holds positions within Ford Motor Company. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Ford’s growth story has a surprising twist. Does this catalyst 1 make the stock a buy? was originally published by The Motley Fool

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