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A Closer Look at Ford (F) and Toyota (TM) – Time to Buy, Hold, or Sell?

Auto sales are projected to rebound in the upcoming quarters with reduced inflation, better inventory and enhanced supply chain. Considering this, is it wise to invest in Toyota Motor Corporation (TM) and Ford Motor Company (F) now? Keep reading…

The auto industry experienced a downturn in sales last year due to elevated inflation and disruptions in the supply chain. Nevertheless, this year has seen a resurgence in sales attributed to reduced inflation, enhanced inventory management, and improvements in supply chain efficiency.

With auto sales expected to keep growing in the upcoming quarters, it could be prudent to consider buying Toyota Motor Corporation (TM). However, Ford Motor Company (F) doesn’t look well-positioned to benefit significantly from the industry trends. Hence, waiting for a better entry point in the stock could be wise.

Before delving deeper into their fundamentals, let’s discuss what’s happening in the auto industry.

Despite higher fuel prices, positive trends are expected for U.S. new vehicle sales in November, with an estimated 10.2% year-over-year increase to 1,236,000 units. Strong demand for the latest models and improved inventories are expected to have driven this growth. Additionally, the global automotive market is projected to reach $28.70 billion by 2030, growing at a CAGR of 4.5%.

Additionally, the worldwide automotive market is projected to reach $6.07 trillion by 2030, growing at a 6.9% CAGR. This growth is attributable to increasing customer interest in electric vehicles (EVs) and advancements in autonomous driving technology.

Notably, the EV market is set to thrive, thanks to government subsidies, stricter emission regulations, a growing public charging network, and cost reductions. The U.S. actively promotes EV adoption, with all 50 states working on a nationwide charging infrastructure network funded by the Infrastructure Investment and Jobs Act (IIJA).

Considering these industry trends, let’s take a look at the fundamentals of the above-mentioned Auto & Vehicle Manufacturers stocks, starting with the second from the investment point of view.

Stock #2: Ford Motor Company (F)

F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model E, and Ford Pro, Ford Next, and Ford Credit segments.

On October 25, 2023, F announced a tentative labor contract agreement with the UAW, covering U.S. operations. The agreement aims to restart multiple manufacturing plants and recall 20,000 employees, pending ratification by F's UAW-represented employees.

On October 18, 2023, F announced the final step in organizational changes for its Ford+ growth plan, establishing a global industrial system to support all F’s gas, hybrid, and electric vehicles. This aims to streamline operations, enhance customer experiences, and optimize quality while reducing costs and complexity.

F’s CEO Jim Farley emphasized that these changes will unlock the growth and value-creation potential of Ford+. This follows the launch of the Ford+ plan, the creation of customer-centered global automotive businesses, the deployment of a new operating system, and the initiation of F’s Integrated Services.

In terms of the trailing-12-month Capex/Sales, F’s 4.60% is 51.3% higher than the 3.04% industry average. Its 14.27% trailing-12-month Return on Common Equity is 25.1% higher than the 11.40% industry average. However, the stock’s 10.41% trailing-12-month gross profit margin is 70.7% lower than the 35.47% industry average.

F’s total revenues for the third quarter ended September 30, 2023, increased 11.2% year-over-year to $43.80 billion. Its adjusted net income increased 27.4% year-over-year to $1.34 billion. Its adjusted EBIT rose 21.9% year-over-year to $2.20 billion. The company’s adjusted EPS came in at $0.39, representing an increase of 30% year-over-year.

On the other hand, its total liabilities equity came in at $268.07 billion, up 47.6% year-over-year to $2.46 billion as of December 31, 2022.

Street expects F’s EPS and revenue for the quarter ending December 31, 2023, to decrease 79% and 2.1% year-over-year to $0.11 and $40.90 billion, respectively. Over the past month, the stock has gained 3.7% to close the last trading session at $10.69.

F’s POWR Ratings reflect uncertainty. It has an overall rating of C, which translates to a Neutral in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It has a C grade for Growth and Quality. It is ranked #37 out of 49 stocks in the B-rated Auto & Vehicle Manufacturers industry. To see F’s ratings for Value, Momentum, Stability, and Sentiment, click here.

Stock #1: Toyota Motor Corporation (TM)

Headquartered in Toyota, Japan, TM designs, manufactures, assembles, and sells passenger vehicles, minivans, commercial vehicles, and related parts and accessories internationally. The company operates in Automotive, Financial Services, and All Other segments.

On November 28, 2023, TM announced the all-new 2024 ‘Toyota Tacoma,’ a redesigned mid-size pickup truck with advanced technology, rugged styling, and enhanced off-road capabilities. Featuring various powertrain options, including a turbocharged i-FORCE 2.4-liter engine and an i-FORCE MAX hybrid, the truck is built on the TNGA-F platform.

On November 16, 2023, TM announced an expanded recycling partnership with Redwood Materials to achieve battery ecosystem circularity. The collaboration includes recycling automotive batteries from TM’s electrified vehicles and sourcing Cathode Active Material (CAM) and Anode copper foil from Redwood for new battery production.

The agreement involves procuring recycled materials for TM Battery Manufacturing, North Carolina, to strengthen domestic supply chains. Redwood is investing in scaling technology and facilities to supply U.S. battery cell manufacturers and automakers.

In terms of the trailing-12-month Capex/Sales, TM’s 9.27% is 205.1% higher than the 3.04% industry average. Its 12.91% trailing-12-month Return on Common Equity is 13.3% higher than the 11.40% industry average. Likewise, the stock’s 9.34% trailing-12-month net income margin is 106.6% lower than the 4.52% industry average.

For the fiscal second quarter that ended September 30, TM’s total sales revenue increased 24% year-over-year to ¥11.43 trillion ($77.62 billion). Its operating income rose 155.6% over the prior-year quarter to ¥1.44 trillion ($9.78 billion). The company’s net income came in at ¥1.32 trillion ($8.96 billion), up 186.3% year-over-year. In addition, its EPS increased 197.9% year-over-year to $94.51.

Analysts expect TM’s revenue for the quarter ending December 31, 2023, to increase 0.9% year-over-year to $74.80 billion. Likewise, its EPS for the fiscal year ending March 31, 2024, is expected to increase 668.2% year-over-year to $20.49. TM’s stock has gained 39% year-to-date to close the last trading session at $189.89.

TM’s POWR Ratings reflect a promising outlook. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Growth, Stability, and Sentiment. It is ranked #24 in the same industry. Beyond what we stated above, we also have given TM grades for Value, Momentum, and Quality. Get all TM ratings here.

What To Do Next?

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TM shares fell $0.29 (-0.15%) in premarket trading Thursday. Year-to-date, TM has gained 42.67%, versus a 20.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.


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