Analyzing Ford’s Valuation Multiples before Its 1Q17 Report
Valuation multiples are widely used in the auto industry to compare companies. However, it’s important to note that we should use valuation multiples to compare companies that are similar in nature in terms of business, size, or financials.
In this manner, Ford Motor Company’s (F) valuation multiples can be compared with peers like General Motors (GM) and Fiat Chrysler (FACU). In this part, we’ll find out where Ford’s valuation multiples are trading before its 1Q17 earnings report.
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Higher valuation multiples
As of April 19, 2017, Ford’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 12.0x. Ford’s EV-to-EBITDA fell in the last few months, but its multiple is still much higher than its peers. General Motors and Fiat Chrysler’s forward EV-to-EBITDA multiples are 5.8x and 1.6x, respectively.
Enterprise value is the market value of equity and debt less cash and cash equivalents. The EV-to-EBITDA multiple values the worth of the entire company and not just the equity portion.
Similarly, Ford’s forward PE (price-to-earnings) multiple is 6.9x—higher than General Motors and Fiat Chrysler’s forward PE multiples of 5.6x and 4.4x, respectively.
Ferrari’s (RACE) valuation multiples are usually much higher than other mainstream automakers’ (VCR) multiples. Ferrari produces super luxury vehicles that yield higher margins than the mass market vehicle segments.
Factors impact multiples
For a mature company like Ford, which has a proven earnings track record, factors that might impact its risk profile should drive its valuation multiples, rather than growth factors.
Currently, Ford’s falling profit margins could be the primary factor impacting its valuation multiples. The company’s weak fiscal 2017 guidance could also impact its valuation multiples. The factors also increase Ford’s risk profile.
In the next part, we’ll discuss key support and resistance levels in Ford’s stock before its 1Q17 earnings event.