Ford (NYSE:) has had a tumultuous year, with some impressive new vehicles in the lineup, the chip shortage and an increasing focus on EVs. Shares are up about 87% in the past year but are down 19.4% from the YTD high of $15.99 on June 3. new models and especially enthusiasm for Ford's EV range. The logic for the stock price's rapid rise seems to be based on the belief that EV companies can support higher valuations than traditional automakers, with Tesla (NASDAQ:) being the prime example (TSLA has an expected P/E of 99 when compared). with F's 6.5, according to Morningstar). Ford's EV offering is impressive, with the Mach-E getting solid reviews and reservations for the F-150 Lightning (the electric version of the F-150) recently hitting 130,000. Ford recently reported that total sales for August 2021 were 33% lower than August 2021, although electric vehicle sales increased by 67%. Ford sold 8,756 EVs in August 2021 and a total of 124,126 vehicles of all makes and types. These, of course, are generally disappointing and EV sales can't do much for the time being. If electric car sales continue to rise at the recent pace and the F-150 Lightning performs as well as expected, Ford should be in good shape.
General Motors' (NYSE:) recent setbacks with EVs also give Ford an even greater edge. Ford seems particularly well positioned to put a broader target audience in EVs. In the short term, however, chip shortages are a major problem. When I last analyzed Ford on March 16, the stock was trading at $13.06, slightly above its current price. I gave the stock a bearish rating because they appreciated much faster than the statistics could justify. As I noted at the time, it was hard to rationalize that the stock was more than 40% above its previous value. COVID 2020 high. To bolster that view, stocks were 6%-8% above the Wall Street consensus 12-month price target and options prices suggested a bearish stance. Ford Performance as of March 16, 2021.
Source: Seeking Alpha
Most readers will be familiar with the consensus ratings and price targets of Wall Street analysts. When analysts' price targets are reasonably consistent, the consensus has meaningful predictive value. Along with the analyst consensus, I look at the market implied outlook, which shows the implied consensus forecast for price returns reflected in option prices. . The price of an option represents the market's estimate of the probability that the price will rise (call option) or fall (put option) relative to the option's strike price. are used to calculate a probabilistic price return forecast for the underlying stock that aligns option prices. For those unfamiliar with this concept, I've written a review post with examples and links to the relevant financial literature. I have also written a significant number of articles using this approach to analyzing individual stocks. Wall Street
Analyst Outlook for Ford
eTrade's estimate of the Wall Street consensus outlook combines the views of 11 ranked analysts who have released opinions in the past 90 days. The consensus rating is bullish and the 12-month consensus price target is $15.57, 28.6% above the current price. . The analysts' lowest price target has a 12-month price target that is 3.2% above the current price.
Wall Street Concensus Ratings
Source: eTrade
Investing . com's version of the Wall Street consensus outlook aggregates the ratings and price targets of 21 analysts. Investing.com's consensus rating is bullish and the 12-month price target is 19.96% above the current price. Of the 21 analysts, 2 have sales ratings for Ford and the lowest of their 12-month price target is $11.
Wall Street Consensus Rating
Source: Investing.com
]It is encouraging that the analyst consensus is a price increase of 20%-28.6% over the next 12 months and the prevailing outlook is bullish. The question is whether the expected gains justify the risks, a topic that will be explored further in later sections. to generate market implied outlook for F. To build a shorter-term outlook (4.5 months into the future), I analyzed options expiring on January 21, 2022. For a slightly longer view (6.3 months), I analyzed options expiring on March 18, 2021. Options trading on F is very active, giving confidence in the significance of the market-implied outlook. distribution of price returns, with probability on the vertical axis and returns on the horizontal. Author's calculations using quotes from options from eTrade
The market implied outlook is quite symmetrical, with similar probabilities of a range of positive and negative returns of the same magnitude. There is no well-defined peak probability, but there is a modest negative tilt, with an increased probability of negative returns. The annualized volatility derived from this distribution is 44.2%. This is quite high for an individual stock, as would have been expected given the rapid rises and falls in F in 2021. To make it easier to directly compare the chances of positive and negative returns, I'm looking at a version of the market-implied outlook where the negative return side of the distribution is rotated around the vertical axis (see chart below).
Source: Author's calculations using options quotes from eTrade. The negative return side of the distribution is rotated about the vertical axis.
This view shows the increased probability of negative returns for the range of returns from about -20% to +20% (the red dotted line is consistently higher than the blue dotted line on the above graph from 0% to 20% on the horizontal axis The largest increased probability of negative returns corresponds to a price return of -9.8%.
In general, we expect the market-implied outlook for equities to be somewhat negative as risk-averse investors in F may be overpaying for put options to limit their downside exposure Compensating for this effect is subjective I interpret this market-implied outlook as neutral with a slight bearish tilt options quotes from eTrade The negative yield side of the distribution has rotated around the vertical axis Using the market-implied outlook for the next 6.3 months (with options expiring March 18, 20 22), the view is slightly more bearish, with a better-defined peak probability at -10% returns. The chances of negative returns are even greater in relation to positive returns than in the shorter-term outlook (there is a greater distance between the red dotted line and the solid blue line). Even taking into account the tendency to see a negative tilt, this market-implied outlook is somewhat bearish. The annualized volatility derived from this distribution is 44.5%.
The market implied outlook goes from neutral, with a slight bearish tilt, over the next 4.5 months to modestly bearish over the next 6.3 months. The two outlooks correspond to an expected annualized volatility of approximately 44%. The market-implied outlook from my last analysis was much more bearish. electric motors. The capital markets are very excited about the potential for electric cars, as evidenced by the valuations of companies that manufacture them. Ford is recovering from the effects of COVID-19 as it faces a shortage of chips used in production cars and trucks. At the same time, Ford has made impressive strides in building out EVs, and some have a solid pipeline of vehicles coming to market (the Bronco and Maverick, for example).
The market is struggling to appreciate Ford stocks, as evidenced by the wide swings in the stock price. The Wall Street consensus predicts that stocks will gain 20%-29% over the next 12 months. The market implied outlook is neutral, with a slight bearish tilt, between now and mid-January 2022, but turns more bearish by mid-March. The contrast between the bullish analyst consensus and the neutral to slightly bearish market implied outlook leads me to a neutral rating as a compromise.
