One of America’s oldest auto manufacturers is supposedly undervalued. With Wall Street’s attention fixated on other competitors, such as Tesla, one analyst report indicates that the markets aren’t recognizing what is a clear buying opportunity.
Goldman Sachs analyst David Tamberrino wrote a note on Thursday where he argued that Ford Motor Co (NYSE: F) was significantly undervalued since the carmaker should see significant cost savings after it’s goes through it’s massive European restructuring.
While Ford Motor has previously outpaced the S&P 500, the past year has seen the stock fall by 16 percent. Nor is this decline unique to Ford, as The Russell 3000 Auto & Auto Parts Index, the best metric for tracking auto stocks, reached a three-year low in late May 2019 as auto manufacturers continued to struggle.
As a result, Ford ended up laying off over 7,000 employees, or 10 percent of its workforce in late May as investors pressured the company to become profitable.
However, Goldman Sachs thinks the company is now priced so low that it’s a buying opportunity. Writing in a note to clients on Thursday, Tamberrino goes on to say that the restructuring could significantly improve operating margins to between 4-7.5 percent.
Many of Ford’s shareholders have criticized the company for its bloated overseas operations, where there are significant cost savings to be found.
“We believe this level of earnings is well above Street expectations for the region over the long-term—which continue to call for losses through 2021,” he wrote, adding that the company will be able to come close to “its targeted through-the-cycle 6% EBIT [earnings before interest and taxes] margin—a level that we believe the market currently underestimates.” Tamberrino also goes on to mention that European sales could further bolster the company’s bottom line. “Once investors begin to see the pathway toward achieving a sustainably profitable European region, we believe shares will move higher.”
The analyst currently has a “buy” rating for the company, raising his target price from $12 to $13 per share. He also increased his earnings estimate by 15 cents to $1.69 per share. The current consensus among Wall Street remains mixed, with most analysts having a “hold” rating on the stock.
The few analysts that are bullish on the stock, however, have relatively strong “buy” ratings on the company for much of the same reasons that Tamberrino cited.
Ford shares shot up 2.2 percent in response to the news, breaking the $10 price point. The past month alone has seen Ford decline by around six percent, a significant drop for a company of such size. Back in April, the automaker saw a drastic one-day move in stock price as shares jumped from $9.4 to $10.4, the largest single-day move seen in over a year.
Ford Motor Company Profile
Ford Motor Co. manufactures automobiles under its Ford and Lincoln brands. The company has about 14.3% market share in the United States and about 7% share in Europe. Sales in North America and Europe made up 65% and 21% of 2018 auto revenue, respectively. Ford has about 199,000 employees, including 55,400 UAW employees, and is based in Dearborn, Michigan. – Warrior Trading News