As global supply chain strains ease, the automotive industry breathes a sigh of relief. The reopening of China adds to the restoration of supply chain conditions, signaling a return to pre-pandemic stability. This marks a pivotal moment following two years of unprecedented challenges.
Amid this evolving landscape, I have assessed two auto stocks, Ford Motor Company (F) and REV Group, Inc. (REVG), to ascertain which presents the prospect of outperforming returns this year. But before delving into the stocks, let's first explore the current dynamics shaping the automotive sector.
Throughout the past year, the auto industry surged with vigor as numerous companies attained double-digit sales growth. Stability returned to a sector long plagued by pandemic-induced turbulence. The remarkable upturn in automakers' fortunes stemmed from pent-up consumer demand and enhanced vehicle availability at dealerships.
S&P Global Mobility forecasts that global light vehicle sales for 2023 surged to nearly 86 million units, showcasing an 8.9% uptick from 2022. Moreover, it projects a 2.8% year-over-year upsurge in global new light vehicle sales for 2024.
The continuous rebound in light vehicle production aids in replenishing inventories as supply chains, and demand continue to recover. This trend is supported by persistent pent-up consumer demand across diverse regions.
Simultaneously, the push toward electrification is gaining momentum, marking the onset of the electric vehicle revolution. Anticipated breakthroughs in battery technology hold the promise of improved EV range and efficiency. Presently, four out of ten Americans are earnestly considering an EV for their subsequent vehicle acquisition.
Furthermore, vehicles are transforming into sophisticated connectivity centers, integrating upgraded infotainment systems, vehicle-to-vehicle communication, and seamless compatibility with smart devices as standard amenities. The emphasis on enhanced connectivity and Internet of Things (IoT) functionalities are further revolutionizing the driving encounter.
In terms of price performance, F has plunged 4.7% over the past month, while REVG gained 8.8% during the same period. Moreover, F witnessed an 11.1% decline over the past six months, while REVG jumped 42.9% over the same duration.
Additionally, F plummeted 15% over the past year, closing the last trading session at $11.59, whereas REVG climbed 48.4% during the same period, closing the last trading session at $19.55.
But which Auto & Vehicle Manufacturers stock could be a better pick? Let's find out.
Recent Developments
In its fiscal third-quarter report, F unveiled a strategic overhaul to tackle quality and cost challenges head-on. The culmination of these efforts is an end-to-end global industrial system forged to support the Ford+ initiative.
The framework integrates vehicle engineering, gas and hybrid programs, supply chain management, and manufacturing, poised to drive operational excellence across Ford Blue, Ford Model e, and Ford Pro segments. The endeavor could lead to heightened efficiency and effectiveness, priming F for sustained growth and competitive dominance.
On January 29, REVG announced strategic moves to streamline its operations and bolster its finances. It sold Collins Bus Corporation to Forest River Bus, LLC for $303.0 million and decided to wind down transit bus manufacturing at ElDorado National-California.
These actions are expected to yield over $250 million in net cash proceeds, with $180 million to be returned to shareholders via a special cash dividend of $3.00 per share, payable on February 16th, 2024.
Recent Financial Results
For the fiscal 2023 third quarter that ended September 30, 2023, F’s adjusted net income and adjusted EPS grew 27.4% and 30% year-over-year to $1.58 billion and $0.39, respectively. However, its total costs and expenses grew 9.7% from the year-ago value to $42.67 billion.
Additionally, as of September 30, 2023, the company’s current liabilities amounted to $100.27 billion, up from $96.87 billion as of December 31, 2022.
For the fiscal 2023 fourth quarter that ended October 31, 2023, REVG’s net sales increased 11.2% year-over-year to $693.30 million. Its adjusted EBITDA grew 61.2% from the year-ago value to $54 million.
Also, the company’s adjusted net income and adjusted net income per common share rose 95.7% and 89.3% from the prior year’s period to $31.70 million and $0.53, respectively.
Past and Expected Financial Performance
Over the past five years, F’s revenue and EBITDA increased at a CAGR of 1.7% and 4.2%, respectively. However, its net income and EPS declined at marginal CAGRs over the same time period.
The consensus revenue estimate of $175.24 billion for the fiscal year ending December 2024 reflects a 4.3% year-over-year increase. However, the company’s EPS is expected to decline 6.6% from the prior year to $1.74.
REVG’s revenue rose at a CAGR of 2.1% and 1.5%, respectively, over the past five years. In addition, its net income and EPS increased at a CAGR of 28.4% and 31%, respectively, over the same time frame.
For the fiscal year ending October 2025, analysts expect the company’s revenue to reach $2.80 billion, indicating a 6.3% year-over-year increase. Likewise, REVG’s EPS for the same period is expected to grow 31.9% from the previous year to $2.07.
Valuation
In terms of forward EV/Sales, REVG is trading at 0.50x, 48.5% lower than F, which is trading at 0.97x. Additionally, REVG’s forward EV/EBITDA of 7.49x is 33.7% lower than the 11.29x industry average.
Thus, REVG is more affordable.
Profitability
F’s trailing-12-month revenue is 66 times that of what REVG generates. However, REVG is more profitable, with a trailing-12-month gross profit margin of 11.98% compared to F’s 10.41%. In addition, REVG’s trailing-12-month ROTC and trailing-12-month asset turnover of 8.90% and 1.92x compare with F’s 3.62% and 0.68x, respectively.
POWR Ratings
F has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. Conversely, REVG has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. F has a C grade for Growth, reflecting its mixed growth record. In contrast, REVG boasts a B grade for Growth, supported by its consistently strong performance in the past.
Furthermore, although both stocks hold a C grade for Stability, REVG demonstrates greater stability, highlighted by its 24-month beta of 0.98. This figure contrasts favorably with F's higher 24-month beta of 1.48.
Of the 51 stocks in the Auto & Vehicle Manufacturers industry, F is ranked #34, while REVG has topped the industry.
Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, and Quality. Click here to view F’s ratings. Get all REVG ratings here.
The Winner
Amid a backdrop of pent-up demand, expanded vehicle accessibility, and heightened attention to advanced safety features, the automotive industry is witnessing a resilient rebound post-pandemic. In this dynamic realm, both F and REVG are well-positioned to seize upon favorable industry conditions.
Nevertheless, REVG's outperformance in financial metrics, coupled with its discounted valuation and enhanced profitability, presents it as a more compelling investment option over F in the current landscape.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
F shares were trading at $11.92 per share on Tuesday morning, up $0.33 (+2.85%). Year-to-date, F has declined -2.21%, versus a 3.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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