Is Ford Still a Buy at $15

Tuesday, January 7, 2014

Is Ford Still a Buy at $15

Ford Motor Company (F) is a manufacturer of cars and trucks based in the United States. Its business is divided into two primary sectors: Automative and Financial Services. The company was founded by Henry Ford in 1903 and has been an American staple of a company ever since. The company sells motor vehicles under the Ford and Lincoln brand names, but also owns small stakes of Mazda and Aston Martin. Ford is currently the second largest U.S. based automaker and the fifth largest automaker in the world.
Image credit: hamsterman / 123RF Stock Photo

The Turnaround Story
Ford was one of the most talked about stories in 2008 with the major recession and bailout. The company was on the brink of bankruptcy but did not take the government bailout. Instead, they were able to push ahead and come out of the mess they were in on their own, and it proved to be successful. Today Ford is performing well, and growth continues to be in the near future for the company.

Industry Analysis
Industry is cyclical as its performance tends to be tied to gasoline prices, overall financial health of the consumer, and the state of the domestic economy. Even well managed companies, tend to be hurt by the economic conditions. Investors of automotive companies must be aware of the current economic conditions and the risks that come along with that, and be ready to adapt. When picking out an automotive stock to buy, it's vital to focus on one that has lean cost structures.
Price Performance History
Ford has a habit of turning themselves around, and then "blowing it" and allowing things to fall apart. Similar to how Ford was doing so well in the late 1990s early 2000s, and then problems with their Ford Explorers rolling over, and tire explosions caused some negative publicity and eventually took a toll on their bottom line. Their price history in the past 20 years or so has been volatile as well, in the late 1980s, and early 1990s Ford traded $1 to $5 range(all prices adjusted for any splits). Late 1990s into the early 2000s Ford surged as high as $36 a share and slowly came down in 2002 to the $10-15 range. During the 2008 financial crisis, Ford went back to levels it hadn't been at since the 1980s, in the $2 range. Automotive companies such as Ford and GM tend to sell off sharply, sometimes to the point when they're oversold in highly volatile markets, which can be a terrific opportunity for traders, as well as long term investor.
Recent News
Ford recently announced their estimates for fiscal year 2013. It expects the 2013 numbers to be an improvement over the 2012 numbers. Ford reported a pre-tax profit of $7.966 billion in fiscal of 2012, and the average analyst expectation for 2013 is around $8.34 billion.
Additionally, Ford also recently declared their dividend payment. Ford announced and paid its fourth quarter dividend of $0.10 per share. This is double the amount of dividend that was paid at this time last year.
Ford's stock price has recently dropped a little due to lower than expected margins and a tough economic climate in 2014. Troubles in Europe could stay weigh in on Ford's earnings, but this is more than likely a temporary problem. Over time things should stabilize and Ford should stand to benefit.
Despite price target reductions lately by Barron's, the direction of Ford's stock is still trending upwards. The price target was cut in response to lower earnings projections, but Barron's still has a price target for Ford of $19/share (down from $21). Barron's still rates the stock to be a buy. Earnings targets are now at $1.40 per share in order to reflect a higher than expected product launch cost. While Ford's stock may be unstable over the short term, long term things seem to be in place for Ford. The improved balance sheet, earnings acceleration into 2015, and nice dividend yield as support should be all resulting in a more favorable price for Ford's shares.
Additional Catalysts
Analysts are currently in favor of the stock. According to Reuters Ford currently has 5 Buy, 6 Outperform, 7 Hold, and only 1 Sell rating. The general consensus for analysts seems to be to buy.
Valuation of the stock seems to be quite attractive. Ford currently trades at a Price to earnings of around 10.9 versus an industry average of 13.6 and a S&P average of 17.9. When comparing that price to earnings to Ford's growth rate, you get a PEG ratio of .6. This shows that Ford stock is currently undervalued in relation to its growth rate. With a nice dividend yield of around 2.6%, Ford also beats the industry average of just 1.1% and the S&P average of 2.3%.
Potential Downsides
The picture at Ford isn't 100% positive as I've touched on slightly decreased earnings guidelines. The odds of CEO Alan Mulally leaving to go to Microsoft (MSFT) seem to becoming greater, which hasn't boded well for Ford's stock. Depending on who the successor is Ford could be in for an interesting ride. If or when the CEO of Ford changes, this could cause some downward trend in stock again. Ideally Ford's long term strategic plan should remain in place, but much of the performance of the company is residing on who the CEO is. Insider selling has been rampant of late, but it is difficult to say whether or not this is planned family selling or if it is a result of something much larger.
When deciding what to do with Ford's stock you're making a difficult decision. Ford is not necessarily a clear buy at $15 as there is much uncertainty about who will be running the business in 2014. Mulally has stated that he plans to stick with Ford into 2014, but the rumor mill on the news would lead you to believe otherwise. However, Ford's long term strategic plan should continue to be implemented regardless of who is at the top. When looking long term, Ford seems like a buy, but keep in mind that short term price fluctuations could be in order for Ford. These may present a buying opportunity, however, those already holding Ford stock should consider holding it.
Author: Justin Martin

No comments:

Related Posts Plugin for WordPress, Blogger...