Ford Motor Company – Cost of Capital Improves, but …
Investors should not get carried away with Ford just yet. Despite market improvement, its cost of capital is still some 70% higher than the median S&P 500 company, reflecting its credit and financial health are still tenuous.
The cost of capital, which is a function of the risk free rate and the firm’s credit health, suggests Ford stock should only be considered by speculative investors, willing to lose a substantial portion of their investment. Ford will be facing strong competition from China and possibly a resurgent GM over the years ahead, and with their long-term free cash flows in doubt, and reliance on debt ( $ $4 bil cash covenant requirement), Ford’s stock appears fully valued.