Morningstar

Ford CEO Change Doesn't Affect Fair Value Estimate

We are leaving our fair value in place due to Ford’s high debt load, and we want to see Farley produce meaningful improvement.

Securities In This Article
Ford Motor Co
(F)

Ford F announced on Aug. 4 that CEO and President Jim Hackett, 65, will retire on Oct. 1 and be succeeded by Jim Farley, 58. Farley is currently COO, and it is not a surprise that he is succeeding Hackett, as that seemed obvious once he became COO in February. We have said in our report that we expected Hackett to retire by the end of 2021, and we’ve heard frustration on earnings calls with Hackett’s vision and communication.

Ford’s stock was just under $11 when Hackett took over in May 2017, so we think the move may lead to share price appreciation in the short term. For now, we are leaving our fair value in place due to Ford’s high debt load, and we want to see Farley produce meaningful improvement, which may take until next year due to launches of the new-generation F-150 late this year and three Broncos coming in 2020-21. Hackett will be a special advisor through March 2021 and Farley joins the board in October. Farley receives a 21% salary increase to $1.7 million and a $4 million stock option grant, but we feel he also has high intrinsic motivation to see Ford succeed because of his bond with his grandfather, an early Ford employee.

We look forward to seeing what Farley brings as a CEO, and we expect a more direct communication style than Hackett’s. Farley is a passionate car person and brings a lifetime of auto experience both from Ford in the U.S., Europe, South America, and Lincoln (he led the latter three at one point) since he joined in 2007, but also from a long Toyota career, including time at Lexus and the launch of the Scion brand. He has extensive marketing and executive leadership experience. On a call, Farley reiterated a 10% North American margin goal, recognized competition from beyond legacy automakers from firms like Tesla, Apple, and Baidu, and said mobility and software bring growth opportunities for Ford. We don’t expect radical strategic changes and expect restructuring to remain in place for a while under Farley.

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About the Author

David Whiston, CFA, CPA, CFE

Strategist
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David Whiston, CFA, CPA, CFE, is a strategist, AM Industrials, for Morningstar*. He covers stocks in the automotive industry, including dealerships, parts manufacturers, and automakers. He has covered the automotive industry since joining Morningstar in 2007. He writes stock reports, ad hoc reports, stock analyst notes, and builds discounted cash flow models for each company covered. He also assesses their economic moat and makes frequent television and print media appearances in local, national, and international news outlets. Key stocks covered include GM, Ford, CarMax, and all six publicly traded franchise auto dealers, such as AutoNation and Penske Automotive Group.

Before joining Morningstar in 2007, Whiston spent four years in PricewaterhouseCoopers’ New York real estate audit practice and one year in its Chicago office working on real estate acquisition due diligence, gaining experience around assessing an asset’s cash flow.

Whiston holds a bachelor’s degree in business administration with a concentration in accounting from the University of Richmond’s Robins School of Business. He also holds a master’s degree in business administration with concentrations in finance, economics, and organizational behavior from the University of Chicago Booth School of Business. He holds the Chartered Financial Analyst® designation, and he is a Certified Public Accountant and a Certified Fraud Examiner.

In 2012, he ranked first in the specialty retailers and services industry in The Wall Street Journal’s annual “Best on the Street” analysts survey. He ranked first in the same industry in 2011 .

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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