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Ford: This Automaker Can Deliver Solid Returns Over the Long Term

August 26, 2014 | About:

After a frail performance in the first quarter, Ford (NYSE:F) surprised Wall Street with breathtaking second-quarter results. The automaker's results were determined by strong performances in North America and Asia, with net income rising 6% from last year despite a 1% drop in revenue. Likewise, its European business skipped back, reporting a profit without precedent for three years.

Ford also outperformed its opponent General Motors (GM), which is confronting headwinds because of several recalls and a government investigation. Ford shares are up 10% so far this year; however the stock has pulled back from its 52-week high as of late. The pullback might be ascribed to lower-than-anticipated car sales in July as reported by most automakers.

That being said, the organization should have the capacity to keep outperforming going ahead. We should see why.

Better times

Ford has also collaborated with various different firms in distinctive land locations to grow its market. Case in point, in China, it opened another transmission plant in a joint wander with Changan. Alongside its expansion plans, Ford is also dead set to convey quality to shareholders. The organization plans to buy back around 116 million shares, which will offset the dilutive impact of potential convertible obligation conversions and stock-based compensation by up to 3%.

Looking past short-term challenges

In any case, from a close term perspective, Ford may confront some challenges in the second – a large portion of the year because of expenses identified with new vehicle launches. The organization will need to manage substantial costs as it launches a big number of models this year. Some models, like the F-150 full-size pickup truck, are experiencing an extensive redesign, which will put pressure on its accounting report in the second half.

In any case, these investments will convey long-haul gains, as Ford is attempting to convey a superior item to customers. Ford is focusing on fuel efficiency.

Ford has prepared the new F-150 with military-grade aluminum, alongside a compelling motor lineup. Subsequently, the organization is attempting its best to win over more customers with exceedingly effective vehicles.

Diversification helps

Ford is doing admirably in other land areas. The organization is pleased with its European business, which has turned profitable following three years determined by the financial recuperation in the European market. Similarly, the Indian economy is also expected it will get back on track after the late general elections and another government to lead the way. By and large, worldwide financial development is expected to proceed as the year progressed, prompting higher worldwide auto industry volume.


As of now, Ford has an earnings multiple of 10.5, which is in accordance with the industry average of 10.9. In addition, its forward P/E of 8.71 looks more alluring, reflecting earnings development. In addition, Ford is cheaper than opponent GM. General Motors has a P/E of 18. Over the long haul, Ford's earnings are on track to develop at a yearly rate of 12%. Also, Ford's normal development rate is route superior to the industry normal which suggests that the automobile industry's bottom line will diminish at 2.67% a year for the coming five years.

At least, Ford has a strong dividend yield of 3%. Its European business is bobbing back, which again is a decent sign. Despite the fact that there may be close-term pressure because of costs associated with new item launches, the long haul looks promising. As such, Ford is still a decent wagered at 52-week highs.

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