Analyzing Ford’s Valuation Multiples before Its Q3 2018 Earnings



Ford’s valuation multiples

As of October 18, Ford’s (F) forward EV[1. enterprise value]-to-EBITDA multiple was 13.0x. That’s based on analysts’ consensus EBITDA estimates for the next 12 months.

In the past year, Ford’s EV-to-EBITDA multiple has eased, but it’s still much higher than many of its competitors. The multiples for General Motors (GM) and Fiat Chrysler (FCAU) are 7.8x and 1.7x, respectively.

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Forward PE ratio

Ford’s forward PE multiple is 6.4x, which is higher than GM’s at 5.5x and FCAU’s at 4.2x but lower than Toyota’s (TM) at 7.8x. These forward valuation multiples were calculated based on the future earnings estimates of the respective auto companies.

The valuation multiple of Ferrari (RACE) is typically much higher than other mainstream auto industry players (IYK). That’s partly because Ferrari sells only luxury vehicles, which tend to yield much higher profit margins than affordable mass-market vehicles. As of October 18, Ferrari’s forward PE multiple was 28.0x.

What could be factored in?

A legacy auto company such as Ford that has a proven earnings track record is sensitive to factors that have an impact on its risk profile. These factors also act as key drivers for its valuation multiples.

Wall Street analysts’ pessimistic estimates for Ford and the company’s dismal 2018 outlook could already be factored into its valuation multiples. That could be one of the reasons its forward multiples have gone down slightly in the last three months. However, better-than-expected earnings, especially a rebound in profitability, could have a positive impact on Ford’s valuation multiples after its the third-quarter earnings release.

In the next and final part of this series, we’ll look at the key support and resistance levels for Ford stock before it reports its third-quarter earnings on October 24.


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