Ford Motor Company (NYSE:F) is one of the first American automotive companies that even today successfully manufactures and sells automobiles, trucks, buses and automotive parts. Ford is the second largest U.S. automaker and the fifth largest vehicle seller in Europe and the world, based on 2010 vehicle sales.
Ford is a producer of cars and trucks. The company also engages in other businesses, such as financing vehicles. Ford operates in two sectors: automotive and financial services. Through its sectors, Ford provides a wide range of vehicles, vehicle parts and services to a multitude of consumers and companies worldwide. It is now revolutionizing its vehicles in order to compete on the world stage.
Performance So Far
Ford is solidly profitable in the United States, is one of the fastest growing automakers in China, and is going to be profitable in Europe, and South America. Since the beginning of 2012, the dividend has increased 160% from $0.05 per share to $0.13 per share for a yield of 3.00%, and the stock has appreciated more than 66%.
- Warning! GuruFocus has detected 6 Warning Signs with F. Click here to check it out.
- F 15-Year Financial Data
- The intrinsic value of F
- Peter Lynch Chart of F
Ford's stock is still attractive as it trades at just under 9 times expected 2015 EPS. This is significantly below the S&P 500's (SPY) forward PE of 16. Ford is also trading with a price to cash flow ratio of 5.5, which is below the S&P 500's price to cash flow of 9.6.
Ford is expected to grow earnings at an average of over 12% annually for the next five years. This is derived from single-digit percentage increases in revenue growth plus single-digit increases in gross margin annually. Ford's expected earnings growth is higher than the average expected earnings growth of the S&P 500 of approximately 10% annually. With a 3% yield, investors can benefit from receiving dividend payments in addition to stock price appreciation.
Gaining Big in China
Many middle-class Chinese say they want a nice car that isn't ostentatious, and isn't a flashy luxury brand, but that still has some luxury features and maybe a luxury-car type ride, and Ford really kind of owns that right now. The Focus has just had a tremendous run in China. It's one of China's best-selling cars every month and, more recently, we've seen strong sales for the Kuga, which is the Chinese version of the Ford Escape SUV, and for the Mondeo, which is the Chinese version of the Fusion.
Continued strong demand for the Ford Focus, the best-selling nameplate in China last year, helped Ford China increase sales by 67% in February, with 73,040 vehicles sold. Ford China’s sales are up 59% so far for the year, with sales of 167,506 vehicles compared to the first two months of 2013.
The U.S. auto industry continues to show strong growth with automobile sales reaching 15 million units in 2013, the industry marked the best year for automakers since 2007. Ford has been able to retain its market share of 15.5% in the domestic market, and the company will likely increase its market share with its new model launches. However, Ford's increasing market share in the European and Asian markets is hugely encouraging, as the Asian markets are growing at an exceptional rate.
Sailing Past the Headwinds: Expect for a Better 2015
On Ford's recent earnings call, CFO Bob Shanks admitted that the introduction of the new F-Series trucks is the main culprit behind the expected decline in North American earnings. Ford produces the F-Series trucks at its Dearborn and Kansas City plants, and the Dearborn plant in particular will have 11 weeks of downtime this year due to the changeover.
Barring a global economic downturn, Ford is likely to see a surge in profitability in 2015, driven by solid improvements in its North America, Europe, and Asia-Pacific regions. In North America, the dislocation caused by the F-Series launch will be more or less over by 2015. In its place, Ford will have the newest full-size pickup lineup in the industry, one which is expected to deliver best-in-class fuel economy.
In total, Ford is launching 16 new or significantly refreshed products in North America during 2014. This will entail some initial launch costs in 2014 and have its biggest benefit in 2015. Ford should also see a return to earnings growth in the Asia-Pacific region in 2015. Ford's profit in that area improved by nearly $500 million last year due to surging sales, particularly in China.
Ford expects sustainable growth moving forward in China. To keep up with market demand, Ford together with its partners currently added four new plants in China. For much of the past decade Ford has trailed Japan's big car makers, but a line-up of new and revamped vehicles, including the top-selling Focus, and a China-Japan territorial spat helped the U.S. company in 2013.
Ford owners are among the most loyal of all car owners, according to Consumer Reports data. Some 56% of Ford owners are likely to buy another one. Ford has certainly been performing well as a company over the past few years — making good vehicles, being consistently profitable, recently reinstating its dividend, and doing a remarkable job paying down its debt.
The growth for the auto manufacturers remains strong in the emerging markets with these economies showing stronger growth than the developed world. Ford is well positioned to exploit this growth opportunity over the next two-three years with its plants in China and Brazil.
Ford's F-150 is the best-selling vehicle in the country, and its new initiatives designed to generate greater fuel efficiency will only improve its standing in the near future. Ford simply dominates the pickup truck market, and its international operations are back on track. It will surely reap good returns to its valued shareholders.