
[ad_1]
Ford Motor Company (F 0.36%) is one of America’s most recognizable brands. Every day you see the famous blue badge in your driveway or on the roads. The company’s history and popularity make it almost always a hot topic in the investment community.
The stock is down 32% in 2022, so you might wonder if there’s more pain ahead in 2023, or if it’s a buy-the-dip opportunity heading into the new year. I looked at the data to find the answer, and a very clear message is being sent. Here’s what you need to know.
An economic storm is brewing
There’s a culmination of factors that could work against Ford in 2023. Cars are big-ticket items for consumers and the businesses that buy them — the average transaction price for a new car was $45,844 in June 2022 .That’s a big pill to swallow, considering the average household income in the United States is just over $70K per year.
Rising interest rates make cars more expensive; today’s typical new car loan has a rate between 5% and 6%, adding to the monthly payment that buyers must shoulder.
These are cracks in the ice for consumers struggling with the inflation they’ve faced all year. You can see below how the personal savings rate has continued to fall, and consumer sentiment has fallen.
US Personal Savings Rate data by YCharts
In summary, cars are more expensive than ever, and consumers don’t feel good about spending their money. That could mean lower sales volumes, which could put a squeeze on Ford’s profits as its factories do their best to produce as many units as possible.
Sales are slipping, and that may continue
Unit sales have started to decline. October unit sales fell 10% year-over-year in the United States, which could spell trouble because it’s Ford’s golden goose. Ford measures its revenue as EBIT (earnings before interest and taxes), which came in at $1.8 billion in the third quarter. However, the North American market contributed most of that, or $1.3 billion.
With weak consumer data in the economy, it’s hard to see car buyers stepping up to the plate anytime soon. Expectations of a recession in 2023 are high, and it will take consumers a while to recover once that passes. Given the potential role of the COVID-19 stimulus in fueling inflation, I don’t expect another injection of money into consumer pockets — it may take some time for sentiment and savings rates to rebuild.
Growth retardation may precede
Analysts have certainly gone back on their expectations for Ford moving forward. I wrote about Ford around this time last year; analysts were optimistic then, calling for earnings-per-share (EPS) growth averaging 25% over the next three to five years.
But the picture has changed since then. Now, analysts are calling for EPS growth averaging just 3% annually over the next three to five years. That’s a dramatic difference. Of course, the picture could change again in the future, but the potential of a recession and weak consumer spending could weigh on Ford’s performance a bit.
Investors can consider the stock a potential long-term investment, slowly buying shares over time. However, it looks like the stock may be holding back for a while, and I’m unlikely to rush out to buy shares until there’s an uptrend in consumer sentiment and signs that Americans are financially sound again.
Justin Pope has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
[ad_2]
Source link