Famous automobile manufacturer Ford Motor Company (F) in Dearborn, Mich., designs, manufactures, markets, and services a range of cars, trucks, sports utility vehicles, and electric vehicles worldwide. It operates through the Automotive; Mobility; and Ford Credit segments. In comparison, Netherlands-based Stellantis N.V. (STLA) designs, engineers, manufactures, distributes, and sells automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide. It offers its products under the brand names Abarth, Alfa Romeo, Chrysler, DS, Dodge, Fiat, Jeep, Maserati, and others.
Automobile manufacturing has taken a hit since the COVID-19 pandemic due to a global semiconductor shortage and raw materials supply chain disruptions. However, as the supply crunch eases, automobile manufacturing is expected to rebound to pre-pandemic levels as demand surges. Governments worldwide have been focusing on achieving net carbon neutral status and are pushing electric vehicle (EV) adoption through subsidies and friendly policies. This should enable auto manufacturers to ramp up production.
F’s shares have gained 30.1% in price over the past year, while STLA lost 17.5%. Also, F is the clear winner with 23.3% gains over the past six months versus STLA’s 30.6% decline during that period.
Click here to check out our Automotive Industry Report for 2022
But which stock is a better buy now? Let’s find out.
Latest Developments
On Jan. 26, 2022, F announced a new joint venture with Jiangling Motors Corporation in a 49:51 joint venture to accelerate the growth of F’s passenger vehicle business in China. This is part of F’s China 2.0 business transformation plan. The operational efficiencies created by the joint venture should help both companies to leverage each other’s competencies to meet customer demands and needs.
On Jan. 27, 2022, STLA announced its plans to increase its stake from 50% to 75% in its joint venture with China Guangzhou Automobile Group Co., Ltd. (GAC). The increase in shareholding is critical to STLA’s plans of setting up a new basis for its business in China. The JV is now fit to support the efficiency of the “One Jeep” strategy, which was focused on developing the brand in China.
Recent Financial Results
F’s revenue for its fiscal fourth quarter, ended Dec. 31, 2021, increased 5% year-over-year to $37.70 billion. The company’s adjusted free cash flow increased 24.6% year-over-year to $2.33 billion. Also, its adjusted EPS came in at $0.26, representing a 23.5% decline year-over-year. In addition, its adjusted EBIT increased 18.9% year-over-year to $2.04 billion.
STLA’s revenue for its fiscal year 2021 increased 13.6% year-over-year to €152.11 billion ($165.29 billion). The company’s net income from continuing operations increased 178.7% year-over-year to €13.35 billion ($14.50 billion). Also, its EPS came in at €4.23, representing a 185.8% increase year-over-year. In addition, its Pro Forma adjusted operating income increased 95.2% year-over-year to €18 billion ($19.56 billion).
Past and Expected Financial Performance
F’s revenue has declined at a 5.2% CAGR over the past three years. However, its EPS grew at a 69.1% CAGR over the same period. Analysts expect F’s revenue to increase 15.9% in the current year and 9.8% next year. The company’s EPS is expected to grow 30.2% in the current year and 11.6% next year. Furthermore, its EPS is expected to grow at 74.1% per annum over the next five years.
In comparison, STLA’s revenue and EPS have grown at CAGRs of 26.3% and 11.6%, respectively, over the past three years. Analysts expect STLA’s revenues to increase 5.5% in the current year and 7% next year. And the company’s EPS is expected to grow at a 20.1% rate per annum over the next five years.
Profitability
F’s 7.6% trailing-12-month levered FCF margin is lower than STLA’s 14.1%. Also, STLA is more profitable, with net income and EBITDA margins of 9.5% and 13.1%, respectively, compared to F’s negative values.
And STLA’s ROE, ROA, and ROTC of 32.9%, 8%, and 15.5%, respectively, compare with F’s negative values.
Valuation
In terms of forward non-GAAP P/E, F is currently trading at 7.74x, which is 158% higher than STLA, which is trading at 3x. Furthermore, F’s forward EV/EBITDA ratio of 10.81x is 1,003% higher than STLA’s 0.98x.
POWR Ratings
F has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. In contrast, STLA has an overall A rating, which equates to a Strong Buy. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
F has a D grade for Sentiment. Analysts expect the company’s EPS to decline at a rate of 0.7% per annum over the next five years, which is in sync with its Sentiment grade. In contrast, STLA has an A grade for Sentiment. The Street expects the company’s EPS to rise at a 20.1% CAGR over the next five years, justifying the Sentiment grade.
Furthermore, F has a C grade for Quality, which is in sync with its negative trailing-12-month return on total capital. In comparison, STLA has a B grade for Quality. This is justified because STLA’s 15.5% trailing-12-month return on total capital is 96.3% higher than the 7.9% industry’ average.
Among 69 stocks in the Auto & Vehicle Manufacturers industry, F is ranked #29. In comparison, STLA is ranked #3.
Beyond what I have stated above, we have also rated the stocks for Growth, Value, Momentum, and Stability. Click here to view all the F ratings. Also, get all the STLA ratings here.
The Winner
The demand for automobiles remains high as the economy recovers from pandemic-driven disruption. And we think STLA is a better investment bet due to its relatively lower valuation and better profit margins.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Auto & Vehicle Manufacturers industry here.
Click here to check out our Automotive Industry Report for 2022
F shares were trading at $16.61 per share on Tuesday afternoon, up $0.64 (+4.01%). Year-to-date, F has declined -19.62%, versus a -10.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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