Ford Is Picking Up Speed
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The global economic crisis has been especially hard on US automakers, as consumers we're left with less money to spend on expensive goods such as cars. However, US auto sales appear to be turning around at the moment, and with that, the prospects of US auto firms. Ford (NYSE: F) is one of these embattled companies, and while sales are still slow in Europe, US sales seem to be picking up. At the moment, Ford appears to be doing well and sells at a discount to the industry.
Ford, with a market cap of almost $50 billion, is one of the world’s largest automobile manufacturers and probably one of the world’s most recognizable brands. The company manufactures and markets cars, trucks and parts for customers worldwide and employs around 164,000 people. Additionally, the financial services division provides various automotive financing solutions. The stock is up just over 20% in the last twelve months, and has a beta of 2.28.
Earnings and Strategy
Fortunately for Ford, US auto sales have soared over the last year, and new vehicle registrations are expected to top 15 million in 2013. With a great deal of pent up demand, many consumers will be looking to replace their older vehicles as the economy picks up steam. EPS has beaten the consensus every quarter this year, and in the most recent report Ford in fact delivered its best Q3 profit ever. These results were in no small part accredited to the company’s financial division. Pre-tax profit was up $200 million compared to the same period a year ago. The auto giant is now boasting 13 consecutive quarters of profitable operations.
While the North American region has seen steady sales increases, Europe remains a tough challenge. The region, largely due to unfavorable macro-economic circumstances, has been a drain on profits for some years now. In order to address this problem, Ford has started the process of ‘rightsizing’ European operations with the aim of saving up to $500 million dollars. The company aims to return to profitability in Europe by mid-decade.
Fundamentals and Metrics
As Ford received a large tax benefit, its P/E multiple is skewed to make the stock look cheaper than it is. I will therefore examine the forward P/E of Ford and some of its competitors. Ford trades at 9.2x forward earnings which is at a discount to the 13.4x industry average. The operating margin isn’t too hot, though, at around 5%. Debt is an issue however, with total debt at over twice the stock’s market cap. Ford’s major US rival GM (NYSE: GM) trades at 7.53x forward earnings, which looks cheap, and Toyota (NYSE: TM) at a forward P/E of 12.15x. Both of these competitors have a smaller debt burden than Ford, while operating margins are largely on par.
As the US auto market is showing tangible signs of recovery, it seems as if the dark days of the US auto industry may be drawing to an end. Ford, which managed to avoid bankruptcy, is delivering strong results and should be able to continue this strong performance in 2013. While Europe is still a serious damper on profits, the company is undertaking steps to improve the bottom line. The stock is currently priced at a discount to the industry, and may see more upside in the coming year.
DUJames has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford. Motley Fool newsletter services recommend Ford and General Motors Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!