Last week, Ford’s (NYSE:F) release of the Bronco went so well that the stock rallied from $6 to nearly $7, up by over 11% in the week. Investors are justified in bidding F stock higher. The Bronco targets an under-served market dominated by only one player: Fiat Chrysler’s (NYSE:FCAU) Jeep Wrangler. Why will the Bronco resonate with consumers?
On July 15, Ford said all 3,500 reservation slots for the top-end Bronco First Edition were taken. It was sold out because the vehicle has a great range of options.
For example, the models offered range from Sport to a full-sized four-door. Investors should recall that the Mustang MACH-E electric vehicle also sold out. And the F-150 truck is a beautifully designed workhorse.
These three models are at the top of their class. They are also uniquely designed, giving consumers fresh choices.
Dividend Suspension Hurt F Stock
Ford’s surprising dividend suspension announcement on March 19, marked a low point in the company’s history. It also sent the stock to a low of $3.96 later that month. But the incredible v-shaped stock market recovery lifted Ford out of those lows. Now, investors may focus on the billions in revenue the Bronco will add to its balance sheet.
Credit Sussie thinks that Ford may earn $7,500 in profit for each Bronco sale. It would get there by selling 125,000 units annually, adding the much-needed $1 billion in profits. The Bronco Sport is the smaller variant that Ford will release in late 2020. In spring 2021, the company will launch the two- and four-door version at just $29,995. This is only around $200 more than the base-model Jeep Wrangler.
Ford has a marketing advantage in that the Bronco is built by an American firm. “Buy American” does not necessarily apply to Jeep, now that Fiat owns it.
Headwinds in Europe
Currently, Ford is suffering from a sales decline in Europe. In the second quarter, Ford sold 168,650 units in Europe, down 51.4% from last year. Despite the sharp drop, competitors also lost sales. So, Ford still has 7.1% of the market share. It may also claim the title of Europe’s No. 1 commercial vehicle brand.
In the region, Ford Focus was the top-selling Ford vehicle sold. The Fiesta and Transit/Tourneo Custom also did well, at 26,015 and 25,428 units, respectively. The company’s new Kuga PHEV is doing well in Europe. It was the best-selling car in Denmark in June 2020.
The Bronco Family World Premier video garnered 3 million views by the end of last week. Effective marketing will drive sales. Plus, Ford cut advertising costs by boycotting Facebook (NASDAQ:FB), Twitter (NASDAQ:TWTR), and Instagram. Besides, the audience may not have any interest in buying cars and trucks. If the advertising boycott is permanent, profit margins should improve from here.
Ford’s valuation is so low that it is below that of the industry and the S&P 500 on nearly every metric:
|Price / Earnings||–||19||28.9|
|Price / Sales||0.2||0.5||2.3|
|Price / Free Cash Flow||4.7||–||22.1|
|Price / Book||0.9||1.2||3.8|
The Bronco launch, the successful MACH-E electric vehicle unveil, and the launch of the new F-150 and Ford Explorer are all positive catalysts that will unlock the discount in Ford stock. A P/E expansion will send shares higher than where it is trading now.
EV suppliers attract all the stock trading funds. So, as investors dump their position and lock in profits after a big run in EV stocks, they might look at parking their money in traditional automotive stocks trading at a big discount. That includes looking at investing in Ford again.
As of this writing, the author held a LONG position in Ford Motor.