Morningstar

Ford Has a Lot of Cash to Fight the Impact of COVID-19

We expect the no-moat firm to survive the damage without going bankrupt.

Securities In This Article
Ford Motor Co
(F)

Ford F is announcing first-quarter earnings on April 28 but announced information on April 13. We are not changing our fair value estimate because at this point the only thing that matters is survival and not whether results meet consensus. Even though Ford is essentially recording no revenue because all of its plants are closed except for its China joint ventures, we expect a resumption of operations sometime in the second quarter. Therefore, we currently expect Ford survives the damage from COVID-19 without going bankrupt or needing massive dilution via new capital.

Ford’s vehicle wholesales declined 21% year over year and revenue will be about $34 billion, a nearly 16% decline from the prior year’s quarter. The Refinitiv consensus of $0.03 is not likely to be met in our view given Ford expects an adjusted pretax loss of about $600 million. No EPS guidance was given because Ford has not yet calculated its first-quarter tax rate. The company also expects to write off about $900 million in deferred tax assets, but that is a noncash charge.

Key new information concerns liquidity and production. Ford said that as of April 9 its cash balance is about $30 billion and with union and supplier support it is considering a phased restart of manufacturing in the second quarter. We expect light-truck plants in Michigan and Kentucky to be the top priority to restart. CFO Tim Stone said Ford can get through at least the third quarter even if production does not resume by then and the company were unable to obtain new funding. Stone hinted Ford is working on raising new cash though it’s unclear if that cash would come from asset sales or the capital markets. This cash burn time line matches up with our calculation that Ford has enough cash to last roughly six months. There is no more material liquidity on credit lines after drawing them down in March but $30 billion gives Ford a lot of time to be shut down if the virus requires that, which is not our expectation.

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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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