Full-size trucks and SUVs are highly valuable to Ford, but there's a new growth story in town.
When you think of investing in Ford Motor Company (F 0.93%) and its potential growth stories, it's easy to bring up its dividend or dominance in high-value trucks and SUVs, or maybe even its potential in electric vehicles (EVs).
Those are all fine points, but in a surprising twist to many, Ford's most compelling growth story might come from Ford Pro, its solution for commercial customers -- here's why.
Comparing the basics
Ironically, considering over a decade ago most commercial sales were considered low margin and a black eye for Detroit automakers, it's Ford Pro's commercial business that's growing faster and with better margins.
Let's throw some numbers out there for investors to chew on. Ford Blue, essentially the company's traditional gasoline vehicle business, is definitely healthy, hauling in nearly $7.5 billion in earnings before interest and taxes (EBIT) in 2023 at an industry respectable 7.3% EBIT margin. But Ford Pro is set to surpass Ford Blue fairly quickly, hauling in $7.2 billion EBIT in 2023 at a much healthier 12.4% EBIT margin.
Here's the kicker -- Ford Pro is growing rapidly. While Ford Blue's revenue increased 8% in 2023, Ford Pro's revenue grew 19% in the same period, compared to the prior year, and its EBIT of $7.2 billion was more than double its level in 2022 -- more than double! Put another way, Ford Blue's $7.5 billion EBIT in 2023 grew only $615 million over the prior year, while Ford Pro's increased by $4 billion.
What's driving Ford Pro?
To be fair, Ford Pro is benefiting from 2023 launches of the division's primary vehicle franchises: all-new Super Duty trucks, which sell well in North America, and Transit Custom vans, which sell great in Europe.
Another part of the driving force behind Ford Pro is often overlooked: its software subscriptions and mobile repairs. In fact, during the fourth quarter of 2023 Ford's software subscriptions jumped 50% from the prior year, and orders for mobile repairs more than doubled.
Management also expects Ford Pro's EBIT margins to reach into the mid-teens by around 2026, which is a much more lucrative margin than its core Ford Blue business that is historically in the mid-single digits.
Is Ford a buy?
Investors can make a fairly compelling investment case for Ford at the moment. The stock trades at a modest 11.8 times earnings and boasts not only a regular dividend yield of nearly 5%, but often annual supplemental dividends that are the cherry on top.
Further, as Ford Pro continues its rapid and more profitable growth, the company's bottom line will look better -- and its full-size truck and SUV business is still a healthy bottom-line story.
Another reason investing in Ford makes sense is that its early transition to EVs has been brutal, with a $4.7 billion loss in 2023. But as Ford slowly turns that business around in the next few years, assuming production capacity increases, EV demand increases, and costs are lowered, it'll be a huge boost to the bottom line.
All those reasons make Ford a compelling buy right now. The only issue is that historically, even when Ford makes substantial improvements on the bottom line, the stock price can remain lethargic. Perhaps this time savvy investors will appreciate Ford's smart moves.
Daniel Miller has positions in Ford Motor Company. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
