Ford’s (F, Financial) stock has been moving down over the last few days as investors weren’t pleased by the company’s earnings miss. Despite growing profits by more than 90%, Ford investors punished the stock for missing the analysts’ EPS estimate of 47 cents by two pennies.
Although Ford’s CFO Bob Shanks confirmed that the EPS miss was entirely due to a higher tax rate than anticipated, investors punished the stock. Ford’s stock has fallen almost 8% since the earnings announcement, and given that it was already trading at a discount valuation, I think the stock has entered the deep-value territory.
F-150 gamble
Ford took a big, big gamble when it decided to change its highest selling car’s (F-150) body panel to aluminum from steel. The company had to retool two of its production plants in order to produce aluminum body frames. The retooling took more time than expected. As a result, Ford couldn’t sell enough units of the pickup truck even while witnessing high demand.
Despite having supply constraints during the first half of the year, Ford has managed to make headway. Because of higher mileage and towing capacity, Ford has been able to charge about $3,000 more for its latest F-150 as opposed to its predecessor. With supply finally catching up to demand, Ford’s sales are finally soaring as many had earlier expected.
The company shared stunning sales numbers for the month of October. The Blue Oval posted its best October sales in 11 years as the F-Series continued a strong rebound after a rampdown earlier this year.
Ford’s U.S. sales were up 13.4% in October, led by a 15% jump in SUV and retail truck sales. The average transaction price also jumped $1,800. Despite the stunning numbers, Ford’s stock continued its downward trajectory and is currently trading at $14.57. No matter how you look at it, the stock is dirt cheap. Ford is currently trading at 12x trailing earnings and has a nice dividend yield of 4.12%. Clearly, the fundamentals are very attractive and highlight Ford’s undervaluation.
With the sales of the new F-150 soaring, I expect Ford to deliver a great quarter the next time. The F-150 will retain its title of being the highest-selling vehicle in America; with two months still to go, Ford should continue gaining traction in the booming pickup truck market. The higher transaction price is also a plus point as it will boost Ford’s earnings going forward.
Conclusion
Ford’s stock has been beaten down for no reason. The company may have missed on earnings by two pennies, but it delivered a huge beat on revenue. Investors should use this opportunity to buy Ford as the stock should move higher in the coming months. With the sales of F-150 finally soaring, the company should witness record profits. Moreover, the growing U.S. automobile market is expected to continue its upward trajectory in the coming years. All these factors combined make Ford a great buy for defensive as well as speculative investors.
