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Ford Motor vs. Toyota: Which Hybrid EV Stock Is a Better Buy?

Barchart - Thu Mar 28, 4:10PM CDT

High electric vehicle (EV) prices and concerns over charging infrastructure have tempered consumer enthusiasm for EVs. Consequently, consumers transitioning from gasoline cars increasingly favor hybrids – the combination of gasoline and electric power. Hybrid sales, including plug-ins, have surged in the last five years. In 2023, Americans bought a record 1.2 million EVs, up 46% annually, while hybrid sales surged 65%. After including plug-ins, hybrids represented about 10% of all new car purchases in the U.S., outpacing pure electric vehicles with a 7.6% market share.

Moreover, as the Biden administration refines its plans for auto emissions standards to reduce the carbon impact of passenger vehicles, makers of plug-in hybrids and regular gas-electric hybrids are expected to benefit.

With the U.S. hybrid EV market predicted to register impressive growth at a 13.8% CAGR through 2032, it’s worth considering the prospects for two automaking giants, Ford Motor Company (F) and Toyota Motor Corporation (TM), which are aggressively striving to capture a bigger piece of the burgeoning hybrid EV market.

Here's a closer look at these two stocks to determine which is the better buy.

The Case for Ford Motor Stock

Michigan-based Ford Motor Company (F), incorporated in 1903, develops, delivers, and services a range of trucks, commercial cars and vans, sport utility vehicles, and Lincoln luxury vehicles worldwide. Its market cap currently stands at $51.89 billion.

Shares of Ford gained 14.5% over the past 52 weeks, lagging the S&P 500 Index's ($SPX) 30.5% increase. Moreover, Ford stock has been a long-term underperformer. Over the past 10 years, it shed nearly 15%.

Ford suspended dividend payments in 2020 due to the pandemic, but reinstated a quarterly dividend in October 2021 at 10 cents per share. Its dividends gradually increased, with management announcing a regular quarterly dividend of 15 cents per share during the Q4 2023 earnings call. The company also declared a special dividend of 18 cents per share. 

Ford's annual dividend of $0.60 per share yields 4.6%. The company’s payout ratio of 61.4% suggests robust dividend coverage from adjusted earnings.

Priced at 6.85x forward adjusted earnings and 0.29x sales, Ford's current valuation reflects a significant discount to its industry peers and its own five-year averages.

Ford Beats Q4 Earnings Expectations

Last year, Ford sold 72,608 EVs, incurring an EBIT loss of $4.7 billion in its “Model e” segment. The auto giant lost a staggering $64,731 for each EV sold in 2023. Meanwhile, total Ford hybrid sales accelerated at year’s end, with record Q4 sales of 37,229 vehicles – up 55%. 

In its early February Q4 earnings report, Ford said it incurred a total loss of $526 million, mainly due to special charges linked to employee pension programs and overseas operations reorganization. Ford’s chief financial officer, John Lawler, said the company’s profit in the fourth quarter was also hurt by higher labor costs stemming from an extended strike by the United Automobile Workers (UAW) union.

That said, the adjusted Q4 earnings of $0.29 solidly beat consensus expectations, and revenue of $43.21 billion also surpassed Wall Street’s forecast. On the conference call accompanying the Q4 release, CEO Jim Farley said, "Our global hybrid sales were up 20% last year, and we expect them to be up 40% this year."

The average analyst recommendation for Ford stock now is a “Hold,” down from a “Moderate Buy” consensus three months ago. Of the 18 analysts covering Ford, five rate the stock as a "Strong Buy," two advise "Moderate Buy," eight suggest a “Hold,” and three say it’s a "Strong Sell."

Ford's average analyst price target of $13.70 indicates a potential upside of 3.2% over the next year. The Street-high price target of $21, raised from $19 by Bank of America analysts following Ford’s Q4 earnings release, suggests the stock could rally as much as 58.18% from current levels.

The Case for Toyota Stock

Valued at $341.6 billion by market cap, Japan-headquartered Toyota Motor Corporation (TM), founded in 1933, designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories across the globe. Toyota dominates in hybrids, with a roughly 40% market share in the U.S..

Toyota shares returned 82.5% over the past 52 weeks, significantly outperforming the SPX. Over the past decade, the stock’s return is nearly 123%.

Toyota has been paying dividends to its shareholders for the past 37 years. The stock offers an annualized dividend of $4.00 per share, which translates to a yield of 1.58%.

Priced at 10.95x forward adjusted earnings and 1.24x sales, Toyota trades at a premium to its industry peers.

Hybrid Dominance Spurs Toyota's Growth

Toyota, a pioneer of hybrid cars since the late 1990s, in early February reported fiscal Q3 sales of $79.50 billion, up 23% year-over-year, while net income increased 86.5% annually to $9 billion. Its Q3 hybrid car sales climbed 47% annually to 951,000 (32% of global retail sales), as total vehicle sales rose about 9%. 

Earlier this year, Toyota chairman Akio Toyoda predicted that demand for all-EVs would hit a ceiling at 30% of the global market, creating an opportunity for more hybrid sales. Likewise, Toyota Executive Vice President Yoichi Miyazaki expects hybrid car sales to rise to 5 million by around 2025, up from 3.4 million in 2023. Miyazaki  said on Toyota’s Q3 conference call, “Hybrids are being recognized as a realistic solution to achieve carbon neutrality.” 

TM has a consensus “Moderate Buy” rating on Wall Street. Out of the six analysts covering TM, three recommend “Strong Buy,” and three suggest “Hold.”

However, the consensus price target is $260.50, which represents an upside potential of 3.5%.

F vs. TM: Which Stock Is a Better Buy Right Now?

Automakers with hybrid offerings, like Toyota and Ford, are poised for long-term growth amid increasing hybrid EV adoption. While Ford holds a slight advantage in the EV market, Toyota's reputation for innovation and significant financial resources could help it dominate the hybrid EV market. This, along with Toyota's better and more reliable dividend payments, makes the Japanese automaker a better buy.   

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

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