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Why Ford Shares Are Soaring This Week

By Howard Smith – Nov 5, 2021 at 10:55AM

Key Points

  • Ford grew sales month-over-month in October and took market share from competitors.
  • The automaker is buying back up to $5 billion in high-interest debt, and hopes to upgrade its credit rating.

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The automaker's stock recently hit its highest level in 20 years.

What happened

Shares of Ford Motor Company (F -2.86%) have been rising fairly steadily this week, and had gained more than 13% as of 10 a.m. EDT Friday morning, according to data provided by S&P Global Market Intelligence. This upward run comes on the heels of a month that added 20% to the value of the stock. It has also lifted the automaker's shares above $19 for the first time in 20 years. 

So what

The latest move upward started when Ford reported strong third-quarter results even as many other automakers continue to struggle with the global chip supply shortage and other logistical constraints. The company said it believes its cash flow is sufficient to cover its growth plans and it announced the resumption of a regular quarterly dividend. Ford also said this week that it will use its cash on hand and other sources of liquidity to repurchase high-interest debt as it seeks to improve its credit rating. 

Ford Lightning F-150 on the assembly line.

Ford electric F-150 Lightning. Image source: Ford Motor Company.

Now what

Ford also reported its October sales data this week, which provided further momentum to the stock. While its October retail sales were down slightly year over year, they grew by more than 16% compared to September as the company gained market share from its competitors. It has now been the top-selling automaker in the U.S. for two months in a row. 

While its business is cruising, Ford management also decided to focus on restructuring its balance sheet. The company said it plans to repurchase up to $5 billion in junk bond debt it took on to shore up its finances as the pandemic hit in early 2020. It sold $8 billion in bonds at that time at interest rates ranging from 8.5% to 9.625%. The company now plans to repurchase much of that, along with some older debt that carries interest rates of at least 6.375%. 

Ridding its balance sheet of high interest payments and potentially getting back its investment-grade status would further improve its prospects as it progresses with its strategy of shifting much of its production to electric vehicles. Investors this week are rewarding the company for both its business prospects and its balance sheet moves.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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