Ford Motor Company (NYSE: F) just turned in a slightly disappointing third-quarter earnings result, which sent the stock tumbling roughly 10% initially. High costs, supplier issues, rising uncertainty and warranty costs all weighed down on the results.
However, with the stock trading at just 11 times price-to-earnings, and offering a robust dividend yield of 5.2%, is there any upside in owning the stock right now?
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Ford’s third quarter wasn’t all bad, with revenue increasing 5% to $46 billion, which marked the 10th consecutive quarter of year-over-year revenue growth. Net income was down $0.3 billion to $0.9 billion due to a previously announced $1 billion electric vehicle (EV) related charge. Adjusted earnings before interest and taxes, or EBIT, increased $352 million to $2.6 billion, driven by higher volume and a more profitable sales mix.
While third-quarter adjusted profit per share matched analyst estimates, the results were underwhelming. That said, there’s certainly upside with Ford stock at these levels, considering three things could improve drastically: its losses on its EV division, model-e, subscriptions to Ford Pro commercial division, and declining warranty and general costs.
Ford Pro, again Ford’s commercial division, has been a bright spot for the automaker in 2024. In fact, during the first nine months of 2024, Ford Pro has generated $7.4 billion EBIT with 14.6% margins. That compares favorably to its traditional Ford Blue business that generated $3.7 billion EBIT on 5% margins over the same time frame.
The upside with Ford Pro, besides its high-demand Super Duty and Transit vehicles, is subscriptions to its software and fleet services. Paid subscriptions to Ford Pro Intelligence were up 30% during the third quarter to nearly 630,000, and repair orders fulfilled by the company grew by 70%. For investors, it’s important to note that Ford Pro’s high margins are driven in part by these lucrative software and services subscriptions.
Digital services and subscriptions is a market expected to grow significantly over the next decade, and while Ford Pro customers are more quickly adopting the services and subscriptions, eventually that will filter down into technology and subscriptions for mainstream consumers, helping Ford Blue margins in the future.
There is also upside potential with the company’s model-e EV division, despite its losses of $1.2 billion in the third quarter alone, and roughly $3.7 billion over the first nine months of 2024. This upside is simply addition by subtraction, as scale and the costs of batteries improve.
