Ford Vs. GM: Which stock is better to buy? | Rare Techy
As the world rushes headlong into the EV (electric vehicle) future, two American automotive icons are battling chip shortages, logistical problems, inflation and higher interest rates. Both Ford Motor Company (NYSE:F) and General Motors Company (NYSE: GM) have seen their share price fall by more than 25% over the past year, as the following chart shows:
The investment question is: What are their prospects in 2023 and beyond?
In this article, I examine the business and financial drivers of Ford and GM to see if a 25%-plus share price decline is warranted, or if one or both of them are turnaround prospects.
When we look at the financial metrics that compare the two companies on a TTM (Trailing Twelve Month) basis, we see two very evenly matched competitors.
Revenue (row 2) is $143 billion for Fi and $147 billion for GM, a difference of 2%. Also, the price-to-sales (row 3) ratio of 0.4 is identical to the market value (row 6) of $56 billion. These metrics are the closest I’ve ever seen the two competitors.
Gross margin % (row 5) is 14% GM vs Ford’s 12%. However, based on gross margin and percentage of market value (row 8), GM’s margin is somewhat higher at 36% compared to Ford’s 30%. This may indicate that GM is slightly undervalued compared to Ford.
Looking at the P/E ratio (row 11), both companies are in the single digits, although GM is slightly lower than Ford’s 7 at 5.5.
Overall, neither company has had a historically high PE ratio, averaging in the single digits over the last 10 years.
When it comes to debt/EBITDA (row 14), both companies are in great shape with negative ratios.
Price to Free Cash Flow (FCF) (row 16) also shows Ford’s huge advantage at 18.7x compared to GM’s very high 56x. It’s typical of the auto industry to make large CAPEX investments, and this is even more true with the rapid expansion of electric vehicle production, so GM’s high ratio should decline over time.
And finally, the dividend yield (line 18) is much higher for F at 3.6% compared to GM’s 0.2%.
Based on the financials, I’d call it a tie, with neither company having a clear advantage.
Wall Street analysts’ ratings show that Ford and GM are well-liked by analysts, but Ford is more liked than GM
Wall Street analyst ratings for Ford and GM appear positive, with Wall Street plus Seeking Alpha analysts indicating a total of 20 buys and 5 sells for Ford and 16 buys and just 1 sell for GM.
Quant estimates for the past year are different, showing only Ford’s Buy rating and GM’s Buy and Hold rating for the entire period. I find it curious that there are no sales in quant valuations.
So it seems that quants really like Ford, but are less enthusiastic about GM.
Dividends, share buybacks and debt
Both Ford and GM have dismal dividend records, as both companies cut their dividends entirely during the reign of COVID in 2020 and 2021.
Both have restored their dividends, but GM’s rate is a fraction of what it was before.
So, if you are looking for a steady and consistent dividend, look elsewhere as neither company is a viable option.
As for share buybacks, neither company has an active buyback initiative.
If we compare the debt/EBITDA data for the last 10 years, we can see that both companies have amazing numbers, i.e. the debt to EBITDA ratio is negative for the entire 10-year period.
Because lower ratios are better, negative ratios are best, so you can assume debt isn’t an issue, at least for now, when analyzing Ford and GM.
Based on dividends, share buybacks, and debt ratios, I don’t see much upside for either Ford or GM.
The auto business is currently plagued by many problems, including but not limited to chip shortages, logistics backlogs, rising inflation in nearly every cost category, and interest rates that are making it increasingly difficult to buy and finance a car.
Globally, Europe is in a severe recession due to fuel prices and the war in Ukraine, plus China has closed large areas of its country due to COVID restrictions. Remember that China is the largest car market in the world.
In a volatile environment like the one we are currently facing, cash is always a viable alternative. CD prices are now over 4%, which we haven’t seen in literally years.
In addition, according to several economists, a recession or even a depression may come. This can make profits unattainable at best and create losses at worst.
So please check every investment opportunity.
In the US, the 3Q2022 auto market looks good for both Ford and GM, with both units seeing sales growth compared to 2021Q3.
But globally, it’s not so good, with all regions down compared to 2021 except China.
With inflation numbers on the rise, both companies have initiated some pretty serious price increases, which will no doubt affect sales next year.
For example, Ford has raised the base price of the Mustang Mach E-GT from $63,000 to $69,900.
GM has also announced general increases in both prices and delivery charges:
GM’s truck lines have been hit particularly hard in this instance, as the Silverado 1500 also sees an $800 base price increase across the lineup. It’s the third time GM has raised prices this year, with various models now running between $3,000 and $3,400 more than the introductory prices announced in December. Source: thedrive.com
As reported GM officehas raised $200 to $1,395 from $1,195 to destination on many GM full-size vehicles.
Obviously, this won’t help sales and will almost certainly have a negative impact on both revenue and profits.
Based on the above analysis, both Ford and GM are stuck until the problems and risks mentioned above are significantly reduced.