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Will Ford Hit Gold in the Emerging Markets

March 17, 2014 | About:
vinaysingh

Vinay Singh

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Ford (F) has been sluggish to expand its presence in the emerging markets in the last ten years, but things are changing now. The recent increase in the company's share price indicates that Ford is improving and may soon reach pre-recession levels.

Shifting Focus Toward Other Markets

Ford has finally realized the importance of making its presence more prominent in the emerging markets. Inspired by its success in India, the company has now turned its attention to the Middle East and African markets. Ford expects these markets to be one of the biggest growth drivers, thus the company has assigned high priority to them. Ford and its Lincoln luxury brand announced that it will be launching 17 new or upgraded vehicles in the Middle East and Africa over the next two years. Ford didn't reveal its complete portfolio, but the company did confirm that it will be offering the highly successful Ford Fusion and EcoSport to its customers.

Ford's sales in this market have already grown by 60% in the last four years, and the company expects an additional increase of 40% before the end of 2020. Presently, Ford sells about 200,000 vehicles annually throughout the Middle Eastern and African segment, commanding a tiny market of 5%. Out of this, the Middle East accounts for 30% of its sales while North Africa and sub-Saharan Africa accounts for 13% and 10% of sales, respectively.

According to Boston Consulting Group, sales in the Middle East and Africa market can grow from 3.7 million units in 2013 to nearly 5.8 million units in 2020. To capitalize on this growth opportunity, Ford will be combining four separate regions — North Africa, sub-Saharan Africa, South Africa and the Middle East — into a single business unit. This unit will comprise of 47 markets and its functioning will be overseen by Jim Benintende, a 36-year Ford veteran.

In order to cater to the needs of its customers, Ford will also improve its dealer network and expand parts accessibility throughout the market. Ford claims that the expansion of dealer network was the primary driver behind its 20% year-over-year growth in sales in this segment, and further enhancement should boost sales.

Ford Earnings: Another Reason to Buy

Ford has been improving its earnings consistently and the last quarter was no exception. The company declared its third-quarter results in October and it reported EPS of $0.45, crushing the consensus estimate of $0.38. Ford's earnings growth has been impressive as the automaker has managed to surpass analyst estimates in each of the last four quarters, with an average beat of 17%.

Going forward, Ford is estimated to earn $1.83 per share in fiscal 2014, which indicates that analysts are expecting growth in the future. Furthermore, Ford's earnings are expected to grow at a CAGR of 15% for the next five years, therefore it looks like a worthy buy right now.

Conclusion

Ford has turned its business around quite successfully in North America while sales in Europe are also recovering. In addition, the company's sales in the Indian market are also increasing, which is good news as India is the second-most populous nation in the world. Now, the company has turned its attention towards the Middle East and Africa market and is planning to launch new products which can boost its earnings further. Ford has appreciated more than 30% this year but it still trades at a reasonable 12 times trailing earnings. The dividend is a sweet 2.40% while the earnings growth expectation for the next five years is almost 15% per year. Ford is making some interesting moves in the Middle Eastern and African market; therefore investors can look forward to stronger top and bottom line growth in the future.


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