Our bullish thesis on Ford is mainly predicated on the turnaround led by CEO Jim Farley and his new leadership team. Whether it be through restructuring underperforming parts of the business (like slashing India production), and getting out of low profitable vehicles, or addressing a roughly $2 billion headwind related to warranty costs, we believe Farley and his management are executing in building a new Ford that grows profitably and generates sustainable free cash flow. We also think Ford's electric vehicle business is underappreciated. They have transformed their most popular and quite frankly, America's most popular F-150, Mustang and E-Transit Cargo Van into electric versions. To top off, Ford has ~10% investment in Rivian (RIVN), which it can sell at any time and add the gains to its balance sheet.

We have a long-term price target of $25 which reflects a smooth transition to the all electric F-150 (Ford's most profitable car), potentials for autonomous driving and a subscription-based service, which all will give way to a multiple-rerating in the stock (we want north of 15x forward earnings). In the short term, Ford is expected to earn $1.79 per share in 2023, and $1.76 per share in 2024. Applying a 10-year average forward P/E of 8, we believe shares should trade between $14.1 - $14.3/share. However, we believe these estimates are too low compared to what the company has promised us, therefore, there's much more room for upside.

Applying a Two-Stage Discounted Cash Flow Model on Ford (F) places the fair value of Ford (F) stock to be $28.37/share.