Weekly Valuation Feature: Can Ford Make the Transition to Vehicles as a Service (VAS)?

Each week, we'll be featuring a Report from Valuation on our Blog.

What is Valuation?

Valuation is an innovative engine online built for valuing public comapnies – and it's free. Our Users can simply type in a ticker and they'll instantly see a "default" intrinsic value for the stock. The platform is flexible, allowing you to easily click and drag your assumptions and the main drivers of the model up and down. The engine is perfect for scenario and sensitivity testing, helping you to quickly gauge whether a company is over or undervalued. You can save all of your Valuations. Currently, Valuation is structured around the Discounted Cash Flow method. Stay tuned, because we're going to be building out additional methodology and features soon.

valuation

What is a Report?

We've built a collaborative platform called Exchange. It's the only platform for exchanging investment analyses that is both qualitative and quantitiative, requiring the actual numbers to back up your conclusions. Users can "Create a Report" and choose one of their Valuations to associate it with. They can then add a written, qualitative analysis to accompany their quantitative valuation, and attach any additional files that they want. These Reports are posted to our Exchange where our users can comment, discuss, and collaborate. Visit Exchange to acquire Reports and add them to your "Library"

Report

This Week's Feature: "Can Ford Make the Transition to Vehicles as a Service (VAS)?"

Submitted by: Andrew Carpenter

I've owned Ford in a retirement account for some time. Next month it looks like Ford will announce its traditional dividend increase as well as a driverless car partnership with Google. That made me want to consider getting some of my taxable portfolio behind the stock. The lack of a recent big downturn for Ford makes me cautious about the company's ability to create a big ROI. I doubled down on IBM and STX instead. My biggest concern with Ford is that I suspect, in the long run, driverless cars will decrease the demand for cars overall.

Beta: Ford has a nice low beta of 1.17. This lack of variability reminds me of Ford's ability to not take a bailout back in the great recession- this is a company that knows about stability and I think that contributes to their brand but hinders their ability to adapt.

Dividend: At over 4% with enough free cash flow to cover payouts and an expected hike in January, Ford is a tempting dividend river to add to feed into my dividend cannon. I think of my monthly dividends as an income stream I can point at things- usually I point them at stocks but someday I want to point them at my expenses to cover my writing habit. Ford certainly qualifies for my ideal range of 3%-6%.

Price: Ford traded about 7% lower than its current price in August and later in September however it has fallen about 14% from its yearly highs in October and last spring. Forgive the roughness of these estimates, I'm really just trying to determine if any surprises have been priced in. Based on its middle of the road price for the year I wouldn't qualify this as an opportunistic time to buy.

P/E ratio: For has a P/E ratio of about 11.72 which makes sense for an old time company in such a competitive industry. I like that multiple, but I don't love it. See my insight into the future of the industry below.

Valuation: The base case valuation for Ford based on Wall Street consensus estimates shows a huge margin of safety score of 71 with an intrinsic value of $48.18. This is one case where I won't trust the algorithmic DCF that Intrinio so kindly calculates for me to make my job easier but it does provide some insight into the fundamentals of Ford- this is a strong company with a healthy balance sheet.

Insight: Here is where my concern with Ford is preventing me from investing more. Imagine the world that Ford's CEO predicted- driverless cars in 5 years. With Google (hopefully) throwing its brains behind Ford, it seems like they will get a jump on that dream. But what will this mean? Someone, maybe Ford, will win the race for government approval. That will be a huge moment for that company and if I had to pick a horse I don't see why Ford, with its strong cash flows to invest, shouldn't win, especially if it partners with Google. In that best case scenario, what would happen for Ford? It would be an initial boom- everyone who could get one would want one, and those babies would actually be worth putting up some serious cash for. 

But then what? Here is my prediction- cars will become like apartments. People with cash will buy them as assets, not liabilities, and will rent them out by the hour. Companies like Uber will become the norm as cars become an operating expense, rather than a capital expense, for most people. In general, this will mean a lot fewer cars will be sold because cars will not be sitting idol. When you aren't driving it, someone else is renting it from you. You've heard as software as a service- can Ford make that transition as well?

Maybe yes, maybe no, but the industry is about to be disrupted in a big way. That creates a lot of opportunity but also a lot of risk. I don't buy automakers because I'm looking for big risks, I'd rather save some cash for a down payment on a driverless car I can rent out. 

______________________________________________________________________________________________________________________________________________

About my strategy:

I use Intrinio’s excel add in to keep a watch list of companies- it’s a great tool because it is free for the amount of data I use and I can set the fields up exactly how I need them. Email me at acarpenter@intrinio.com and I’ll send you my template or answer your questions about the Excel add-in, you can also see it attached to each of my reports.

In that watch list I look at the following metrics:

Price: Has the stock dropped significantly (10% or more) or is the company near its 52 week low (within 10%). If so, I take this as evidence that the stock is a contrarian buy- others are bearish so I want to be bullish. The drop in price is assumed to indicate at least some negative factors are priced in, providing some margin of safety.

P/E Ratio: With the full knowledge that interpreting P/E ratios is far more complicated than simply saying lower is better, I’m looking for companies in the sweet spot between 8-14. This means the company is stable but under valued as compared to historic averages for the broader market which fluctuates between 15-22. I consider getting more earnings for a lower price to be a mark of value and as a value investor, I’m looking for stocks in this range.

Beta: Price fluctuations can be an opportunity for traders and market timers but I would rather see slow, steady growth over time. That said, I’m looking for growth and with growth comes some volatility. I’m looking for betas under 2 with betas under 1 being a big plus.

Dividend: I understand the argument for a company reinvesting in itself instead of paying money to its shareholders. Still, a dividend that has grown overtime is a sign that a company can build its asset base and provide cash to investors. That is a good sign and it is something that gives me the confidence that if I am wrong about a stock I can get paid to hold onto it until it rebounds. Someday I’d like to use my dividends as an income stream and as I find great values I plan to hold them for years or decades for this purpose. I consider 3%-6% to be the ideal balance between repaying shareholders and reinvesting in future growth.

Valuation: With the help of Intrinio’s online valuation engine I will check my assumptions against the DCF intrinsic value of the company to determine if it is the right buy at the right time.  

Insight: When I find a stock whose business model I like, I add it to my watch list and, when I have capital to invest, I look for stocks on my list that fit the criteria listed above. If I find one, I will generate a report on it that includes these factors as well as my personal insight into the future of the company. 

 

- See more at: https://www.intrinio.com/app#/report/41

 

I've owned Ford in a retirement account for some time. Next month it looks like Ford will announce its traditional dividend increase as well as a driverless car partnership with Google. That made me want to consider getting some of my taxable portfolio behind the stock. The lack of a recent big downturn for Ford makes me cautious about the company's ability to create a big ROI. I doubled down on IBM and STX instead. My biggest concern with Ford is that I suspect, in the long run, driverless cars will decrease the demand for cars overall.

Beta: Ford has a nice low beta of 1.17. This lack of variability reminds me of Ford's ability to not take a bailout back in the great recession- this is a company that knows about stability and I think that contributes to their brand but hinders their ability to adapt.

Dividend: At over 4% with enough free cash flow to cover payouts and an expected hike in January, Ford is a tempting dividend river to add to feed into my dividend cannon. I think of my monthly dividends as an income stream I can point at things- usually I point them at stocks but someday I want to point them at my expenses to cover my writing habit. Ford certainly qualifies for my ideal range of 3%-6%.

Price: Ford traded about 7% lower than its current price in August and later in September however it has fallen about 14% from its yearly highs in October and last spring. Forgive the roughness of these estimates, I'm really just trying to determine if any surprises have been priced in. Based on its middle of the road price for the year I wouldn't qualify this as an opportunistic time to buy.

P/E ratio: For has a P/E ratio of about 11.72 which makes sense for an old time company in such a competitive industry. I like that multiple, but I don't love it. See my insight into the future of the industry below.

Valuation: The base case valuation for Ford based on Wall Street consensus estimates shows a huge margin of safety score of 71 with an intrinsic value of $48.18. This is one case where I won't trust the algorithmic DCF that Intrinio so kindly calculates for me to make my job easier but it does provide some insight into the fundamentals of Ford- this is a strong company with a healthy balance sheet.

Insight: Here is where my concern with Ford is preventing me from investing more. Imagine the world that Ford's CEO predicted- driverless cars in 5 years. With Google (hopefully) throwing its brains behind Ford, it seems like they will get a jump on that dream. But what will this mean? Someone, maybe Ford, will win the race for government approval. That will be a huge moment for that company and if I had to pick a horse I don't see why Ford, with its strong cash flows to invest, shouldn't win, especially if it partners with Google. In that best case scenario, what would happen for Ford? It would be an initial boom- everyone who could get one would want one, and those babies would actually be worth putting up some serious cash for. 

But then what? Here is my prediction- cars will become like apartments. People with cash will buy them as assets, not liabilities, and will rent them out by the hour. Companies like Uber will become the norm as cars become an operating expense, rather than a capital expense, for most people. In general, this will mean a lot fewer cars will be sold because cars will not be sitting idol. When you aren't driving it, someone else is renting it from you. You've heard as software as a service- can Ford make that transition as well?

Maybe yes, maybe no, but the industry is about to be disrupted in a big way. That creates a lot of opportunity but also a lot of risk. I don't buy automakers because I'm looking for big risks, I'd rather save some cash for a down payment on a driverless car I can rent out. 

______________________________________________________________________________________________________________________________________________

About my strategy:

I use Intrinio’s excel add in to keep a watch list of companies- it’s a great tool because it is free for the amount of data I use and I can set the fields up exactly how I need them. Email me at acarpenter@intrinio.com and I’ll send you my template or answer your questions about the Excel add-in, you can also see it attached to each of my reports.

In that watch list I look at the following metrics:

Price- Has the stock dropped significantly (10% or more) or is the company near its 52 week low (within 10%). If so, I take this as evidence that the stock is a contrarian buy- others are bearish so I want to be bullish. The drop in price is assumed to indicate at least some negative factors are priced in, providing some margin of safety.

P/E Ratio- With the full knowledge that interpreting P/E ratios is far more complicated than simply saying lower is better, I’m looking for companies in the sweet spot between 8-14. This means the company is stable but under valued as compared to historic averages for the broader market which fluctuates between 15-22. I consider getting more earnings for a lower price to be a mark of value and as a value investor, I’m looking for stocks in this range.

Beta- Price fluctuations can be an opportunity for traders and market timers but I would rather see slow, steady growth over time. That said, I’m looking for growth and with growth comes some volatility. I’m looking for betas under 2 with betas under 1 being a big plus.

Dividend- I understand the argument for a company reinvesting in itself instead of paying money to its shareholders. Still, a dividend that has grown overtime is a sign that a company can build its asset base and provide cash to investors. That is a good sign and it is something that gives me the confidence that if I am wrong about a stock I can get paid to hold onto it until it rebounds. Someday I’d like to use my dividends as an income stream and as I find great values I plan to hold them for years or decades for this purpose. I consider 3%-6% to be the ideal balance between repaying shareholders and reinvesting in future growth.

Valuation: With the help of Intrinio’s online valuation engine I will check my assumptions against the DCF intrinsic value of the company to determine if it is the right buy at the right time.  

Insight: When I find a stock whose business model I like, I add it to my watch list and, when I have capital to invest, I look for stocks on my list that fit the criteria listed above. If I find one, I will generate a report on it that includes these factors as well as my personal insight into the future of the company. 

 

- See more at: https://www.intrinio.com/app#/report/41

I've owned Ford in a retirement account for some time. Next month it looks like Ford will announce its traditional dividend increase as well as a driverless car partnership with Google. That made me want to consider getting some of my taxable portfolio behind the stock. The lack of a recent big downturn for Ford makes me cautious about the company's ability to create a big ROI. I doubled down on IBM and STX instead. My biggest concern with Ford is that I suspect, in the long run, driverless cars will decrease the demand for cars overall.

Beta: Ford has a nice low beta of 1.17. This lack of variability reminds me of Ford's ability to not take a bailout back in the great recession- this is a company that knows about stability and I think that contributes to their brand but hinders their ability to adapt.

Dividend: At over 4% with enough free cash flow to cover payouts and an expected hike in January, Ford is a tempting dividend river to add to feed into my dividend cannon. I think of my monthly dividends as an income stream I can point at things- usually I point them at stocks but someday I want to point them at my expenses to cover my writing habit. Ford certainly qualifies for my ideal range of 3%-6%.

Price: Ford traded about 7% lower than its current price in August and later in September however it has fallen about 14% from its yearly highs in October and last spring. Forgive the roughness of these estimates, I'm really just trying to determine if any surprises have been priced in. Based on its middle of the road price for the year I wouldn't qualify this as an opportunistic time to buy.

P/E ratio: For has a P/E ratio of about 11.72 which makes sense for an old time company in such a competitive industry. I like that multiple, but I don't love it. See my insight into the future of the industry below.

Valuation: The base case valuation for Ford based on Wall Street consensus estimates shows a huge margin of safety score of 71 with an intrinsic value of $48.18. This is one case where I won't trust the algorithmic DCF that Intrinio so kindly calculates for me to make my job easier but it does provide some insight into the fundamentals of Ford- this is a strong company with a healthy balance sheet.

Insight: Here is where my concern with Ford is preventing me from investing more. Imagine the world that Ford's CEO predicted- driverless cars in 5 years. With Google (hopefully) throwing its brains behind Ford, it seems like they will get a jump on that dream. But what will this mean? Someone, maybe Ford, will win the race for government approval. That will be a huge moment for that company and if I had to pick a horse I don't see why Ford, with its strong cash flows to invest, shouldn't win, especially if it partners with Google. In that best case scenario, what would happen for Ford? It would be an initial boom- everyone who could get one would want one, and those babies would actually be worth putting up some serious cash for. 

But then what? Here is my prediction- cars will become like apartments. People with cash will buy them as assets, not liabilities, and will rent them out by the hour. Companies like Uber will become the norm as cars become an operating expense, rather than a capital expense, for most people. In general, this will mean a lot fewer cars will be sold because cars will not be sitting idol. When you aren't driving it, someone else is renting it from you. You've heard as software as a service- can Ford make that transition as well?

Maybe yes, maybe no, but the industry is about to be disrupted in a big way. That creates a lot of opportunity but also a lot of risk. I don't buy automakers because I'm looking for big risks, I'd rather save some cash for a down payment on a driverless car I can rent out. 

______________________________________________________________________________________________________________________________________________

About my strategy:

I use Intrinio’s excel add in to keep a watch list of companies- it’s a great tool because it is free for the amount of data I use and I can set the fields up exactly how I need them. Email me at acarpenter@intrinio.com and I’ll send you my template or answer your questions about the Excel add-in, you can also see it attached to each of my reports.

In that watch list I look at the following metrics:

Price- Has the stock dropped significantly (10% or more) or is the company near its 52 week low (within 10%). If so, I take this as evidence that the stock is a contrarian buy- others are bearish so I want to be bullish. The drop in price is assumed to indicate at least some negative factors are priced in, providing some margin of safety.

P/E Ratio- With the full knowledge that interpreting P/E ratios is far more complicated than simply saying lower is better, I’m looking for companies in the sweet spot between 8-14. This means the company is stable but under valued as compared to historic averages for the broader market which fluctuates between 15-22. I consider getting more earnings for a lower price to be a mark of value and as a value investor, I’m looking for stocks in this range.

Beta- Price fluctuations can be an opportunity for traders and market timers but I would rather see slow, steady growth over time. That said, I’m looking for growth and with growth comes some volatility. I’m looking for betas under 2 with betas under 1 being a big plus.

Dividend- I understand the argument for a company reinvesting in itself instead of paying money to its shareholders. Still, a dividend that has grown overtime is a sign that a company can build its asset base and provide cash to investors. That is a good sign and it is something that gives me the confidence that if I am wrong about a stock I can get paid to hold onto it until it rebounds. Someday I’d like to use my dividends as an income stream and as I find great values I plan to hold them for years or decades for this purpose. I consider 3%-6% to be the ideal balance between repaying shareholders and reinvesting in future growth.

Valuation: With the help of Intrinio’s online valuation engine I will check my assumptions against the DCF intrinsic value of the company to determine if it is the right buy at the right time.  

Insight: When I find a stock whose business model I like, I add it to my watch list and, when I have capital to invest, I look for stocks on my list that fit the criteria listed above. If I find one, I will generate a report on it that includes these factors as well as my personal insight into the future of the company. 

 

- See more at: https://www.intrinio.com/app#/report/41

– See more at: https://www.intrinio.com/app#/report/41