As the U.S. auto market recovers and sees demand for new vehicles rise, firms such as Ford Motor Co. (F, Financial) have shifted towards the spotlight. Strong positive signals from quarterly results in 2013, and good prospects for 2014, even sparked Ray Dalio’s attention. The investment guru recently bought into the Detroit-based vehicle manufacturer, which is expected to reach a share value of around $26 per share next year. How Ford intends to grow so much, and how its current situation helps the auto maker, requires further explanation.
Growth on Two Fronts, Will Europe Be the Third?
The recovery of the U.S. auto market has been highly beneficial for Ford this year, and is expected to continue delivering positive results. As the North American economy recovers, the firm shouldn’t have much trouble sustaining sales above the 16.4 million units mark. At least this is the company’s goal in 2014, after it announced projected sales of 15.5 million vehicles for 2013. Hence, the car manufacturer can actually see unit volume growth of around 5% in the U.S., without having to increase market share. The popular Ford Fusion, whose sales rose by 51% this year, is largely responsible for the increment in sales.
China is another growing market which offers Ford ample opportunity to increase its global presence. With sales volumes already up by more than 50% since January 2013, the firm should not have much trouble selling over 1 million units in the region by 2014. In addition, Ford plans to expand its offerings to 15 vehicles by 2015, in anticipation of growing demand in China.
Despite struggling car sales in Europe, which have represented a $1 billion loss year-to-date in the region, improvements are already visible. And, due to the recession, Ford has already undergone a restructuring effort, which will make it more profitable once sales recover. Analysts are uncertain as to how long it will take Europe to recover, yet if it happens similar as to the U.S. recovery, Ford will come out winning.
Common Vehicle Platforms
Much of Ford’s future success will stem from the wide use of common vehicle platforms, an area where it is far ahead of rival General Motors Co. (GM, Financial). The firm estimates that by 2016, 99% of global output will be achieved by utilizing only nine vehicle platforms. This enables a greater scale, while keeping production flexible in case of fluctuating demand for different vehicle models.
Share Price Evolution and Valuation
Despite the drop in share price since the last time I wrote about Ford three months ago, stock prices have been on a steady growth trajectory since the beginning of the year. In fact, Ford shares are currently trading near their 52-week high of $18. With an estimated ROIC of 7.9%, and an annual dividend yield of 2.4%, those who were savvy enough to invest in the Detroit-based automaker are bound to be rewarded.
Luckily, the time for entry has not yet passed, as the firm is still trading at a reasonable 11.6 times its trailing earnings, at a 24.5% price discount relative to the industry average. With Ford on a clear growth path, and shares of common stock undervalued, I feel bullish regarding a long-term value investment in the vehicle manufacturer.
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
Growth on Two Fronts, Will Europe Be the Third?
The recovery of the U.S. auto market has been highly beneficial for Ford this year, and is expected to continue delivering positive results. As the North American economy recovers, the firm shouldn’t have much trouble sustaining sales above the 16.4 million units mark. At least this is the company’s goal in 2014, after it announced projected sales of 15.5 million vehicles for 2013. Hence, the car manufacturer can actually see unit volume growth of around 5% in the U.S., without having to increase market share. The popular Ford Fusion, whose sales rose by 51% this year, is largely responsible for the increment in sales.
China is another growing market which offers Ford ample opportunity to increase its global presence. With sales volumes already up by more than 50% since January 2013, the firm should not have much trouble selling over 1 million units in the region by 2014. In addition, Ford plans to expand its offerings to 15 vehicles by 2015, in anticipation of growing demand in China.
Despite struggling car sales in Europe, which have represented a $1 billion loss year-to-date in the region, improvements are already visible. And, due to the recession, Ford has already undergone a restructuring effort, which will make it more profitable once sales recover. Analysts are uncertain as to how long it will take Europe to recover, yet if it happens similar as to the U.S. recovery, Ford will come out winning.
Common Vehicle Platforms
Much of Ford’s future success will stem from the wide use of common vehicle platforms, an area where it is far ahead of rival General Motors Co. (GM, Financial). The firm estimates that by 2016, 99% of global output will be achieved by utilizing only nine vehicle platforms. This enables a greater scale, while keeping production flexible in case of fluctuating demand for different vehicle models.
Share Price Evolution and Valuation
Despite the drop in share price since the last time I wrote about Ford three months ago, stock prices have been on a steady growth trajectory since the beginning of the year. In fact, Ford shares are currently trading near their 52-week high of $18. With an estimated ROIC of 7.9%, and an annual dividend yield of 2.4%, those who were savvy enough to invest in the Detroit-based automaker are bound to be rewarded.
Luckily, the time for entry has not yet passed, as the firm is still trading at a reasonable 11.6 times its trailing earnings, at a 24.5% price discount relative to the industry average. With Ford on a clear growth path, and shares of common stock undervalued, I feel bullish regarding a long-term value investment in the vehicle manufacturer.
Disclosure: Patricio Kehoe holds no position in any stocks mentioned.
