Between 2015-19 Ford was valued at an average 4.2x earnings on an EV/EBITDA basis, 7.0x on a P/E basis and EV/FCF of 8.0x. The near-term impact from the supplier fire, in our view, will largely be overlooked and we expect the market to discount 2026-27 performance.Our  price target of $13.50 reflects improving financials and declining tariff risk in the market. Our target uses the upper end of our valuation metrics applied to our 2026-27 estimates.

The auto industry is capital-intensive, labor-intensive, cyclical, low-growth, competitive, and highly regulated.  While industry characteristics limit competitive threats, each presents ad added financial risk. Industry demand in the major global markets depends on current economic conditions, which can change unexpectedly and could have a material impact on our earnings assumptions. The high relative fix cost structure of the industry can lead to material changes in pricing for new and used vehicles as well as components. A material decline in the price structure of the industry could have a material impact on our financial assumptions. During periods of severe industry recession in the past, many companies in the auto sector were forced to seek bankruptcy protection.

If the impact on the company from any of these factors differs from our base case expectations, the stock could have difficulty achieving our target price or could increase more than we expect.