F-PD
Ford Motor Company 6.500% Notes
$21.21
Cyclical & Capital-Intensive
80%
Normalized Earnings × Cycle Multiple
Strong
·
Conviction
Overvalued
Trading 150.6% above fair value
You pay
$21.21
Bear
$5.21
Fair
$8.46
Bull
$11.72
Bear
$5.21
-75.4%
$1.30 × 7x + net cash
Fair
$8.46
-60.1%
$1.30 × 10x + net cash
Bull
$11.72
-44.8%
$1.30 × 12x + net cash
Key Value Driver
Through-cycle normalized EPS ($1.30)
Implied Market Multiple
16.3x
Summary
Using 7-year normalized EPS of $1.30 at a 10x cycle multiple, the base-case value is $8.46 per share. P/TBV cross-check: 2.3x.
Warnings
This company has a built-in lending arm whose debt is mixed in with the main business. We capped the debt adjustment to avoid overstating what the core business owes.
Price-to-book value of 2.3x is above the normal range for this type of business (0.7x-2.0x). The stock may already price in a strong cycle.
Key Risks
- Standard 10-year DCF produces unreliable terminal values for cyclicals
- 'Cheap' P/E at cycle peak is the most common value trap — normalize first
- Captive finance subsidiaries have different risk profiles from manufacturing