Ford Motor Company's (F -0.08%) stock price jumped on Wednesday after the auto titan said it would make a more aggressive push into the electric-vehicle (EV) industry. To do so, Ford is splitting its business into two separate units.
One division will focus on accelerating Ford's push into the fast-growing EV arena, while the other tries to maximize the cash flow of its legacy auto manufacturing operations. It's a bold plan that could pay dividends for investors, but not one that's likely to meet with universal applause. As of 2:30 p.m. ET Thursday, shares were down 2.5%.
RBC Capital analyst Joseph Spak celebrated Ford's announcement. He believes that by separating its EV segment from its internal combustion engine manufacturing, the company is making it easier for investors to value Ford's business based on the sum of its parts.
However, some shareholders wanted Ford to spin off its EV business. That would have given growth-focused investors the option of owning an intriguing new EV company as a pure play on the industry's rapid expansion.
Image source: Getty Images.
Meanwhile, Ford's legacy auto business, once stripped of the heavy costs of building out its EV production capabilities, could have demonstrated improved profitability and cash flow. That would've likely made it more appealing to income-focused investors.
Each company could have better served the needs of its target investors, and therefore, would likely have received a higher valuation than they currently do within Ford. In turn, Spak believes Ford's decision to not spin off its EV business will result in investors demanding a discount typically seen with holding companies and other large conglomerates.
All told, Spak values Ford at $22 per share, or roughly 24% above the stock's current price near $17.75. If that sounds like an adequate level of potential upside to you, and you're comfortable with the risks inherent in a business striving to compete and win within a dynamic new industry, Ford's stock could be a decent buy today.
