Behind the Wheel: Analyzing Ford Motor (F) and Subaru (FUJHY) for Potential Investment Opportunity

Despite macroeconomic concerns, increased demand is projected to keep auto sales in the United States strong. Also, the availability of new models with enhanced features and technology contributes to the positive sales outlook.

Therefore, it could be wise for investors to buy fundamentally sound auto stock Subaru Corporation (FUJHY) now. However, I think it would be wise to wait for a better entry point in Ford Motor Company (F).

In August, the number of new vehicles sold in the U.S. was 1,341,169 units, up 16.2% from August 2022 and 2.0% from July 2023, when supply chains were still constraining output.

Furthermore, the global automotive market is expected to grow to $28.70 billion by 2030 at a CAGR of 4.5%. This expansion can be attributed to various factors, including rising customer demand for electric vehicles and advances in autonomous driving technology.

The global Electric Vehicles (EV) market is predicted to grow at an 18.3% CAGR until 2032. Rising demand for fuel-efficient, high-performance, low-emission automobiles is one of the major factors driving market revenue growth.

Let’s discuss the fundamentals of the stocks mentioned above.

Stock to Buy:

Subaru Corporation (FUJHY)

Headquartered in Tokyo, Japan, FUJHY manufactures and sells automobiles and aerospace products in Japan, the rest of Asia, North America, Europe, and internationally. It operates through three segments: Automotive; Aerospace; and Others.

FUJHY’s forward EV/Sales of 0.25x is 78.2% lower than the industry average of 1.12x. Its forward Price/Sales multiple of 0.50 is 39.5% lower than the industry average of 0.83.

FUJHY’s trailing-12-month levered FCF margin of 48.20% is 15.9% higher than the industry average of 5.09%, while its trailing-12-month EBITDA margin of 13.93% is 26.5% higher than the industry average of 11.01%.

FUJHY’s revenues came in at ¥1.08 trillion ($7.28 billion) for the quarter ended June 30, 2023, up 29.7% year-over-year. Its operating profit increased 128.4% year-over-year to ¥84.47 billion ($567.87 million). In addition, its profit increased 169.2% year-over-year to ¥73.24 billion ($492.40 million). Its EPS came in at ¥95.89.

FUJHY’s revenue is expected to increase 87.2% year-over-year to $30.25 billion for the year ending March 2024. Its EPS is expected to grow 49.3% year-over-year to $1.45 for the same period. Over the past six months, the stock has gained 30.4% to close the last trading session at $10.02.

FUJHY’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

FUJHY has an A grade for Value and a B for Growth, Stability and Quality. In the B-rated Auto & Vehicle Manufacturers industry, it is ranked #6 out of 54 stocks. To see additional POWR Ratings for Sentiment and Momentum for FUJHY, click here.

Stock to Hold:

Ford Motor Company (F)

F develops, delivers, and services a range of Ford trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. It operates through Ford Blue, Ford Model e, and Ford Pro; Ford Next; and Ford Credit segments.

F’s forward EV/Sales multiple of 0.94 is 16% lower than the industry average of 1.12, while its forward EV/EBITDA multiple of 10.31% is 11.4% higher than the industry average of 9.26.

F’s trailing-12-month CAPEX / Sales of 4.43% is 37.8% higher than the industry average of 3.22%, while its trailing-12-month asset turnover ratio of 0.66x is 33.9% lower than the industry average of 1x.

F’s total revenues for the second quarter ended June 30, 2023, increased 11.9% year-over-year to $44.95 billion. Its adjusted net income increased 6.5% year-over-year to $2.93 billion. The company’s non-GAAP EPS came in at $0.72, representing an increase of 5.9% year-over-year.

However, its operating income declined 14.2% year-over-year to $2.46 billion.

Street expects F’s revenue to increase 17.1% year-over-year to $174.46 billion for the year ending December 2023. Its EPS is expected grow at 10.3% year-over-year to $2.07 for the same period. It has surpassed EPS estimates in three of four trailing quarters. Shares of F has gained 15.5% over the past nine months to close the last trading session at $12.43. However, it has lost 12.4% over past three months.

F’s mixed outlook is reflected in its POWR Ratings. It has an overall rating of C, which translates to a Neutral in our proprietary rating system.

It has a C grade for Momentum, Stability, Sentiment, and Quality. It is ranked #29 in the same industry. Beyond what is stated above, we’ve also rated F for Growth and Value. Get all F ratings here.

What To Do Next?

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FUJHY shares were trading at $9.89 per share on Monday morning, down $0.13 (-1.28%). Year-to-date, FUJHY has gained 30.82%, versus a 13.96% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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