Tuesday, March 16, 2010

Ford Motor Co. (NYSE: F): Well Positioned For Next Boom

The rally in Ford (NYSE: F) shares shows no signs of slowing down. Shares of the company have climbed over 20% over the past one month and are up about 535% year-over-year.

The auto maker is now North America’s largest auto company, after mis-steps by rivals GM and Toyota helped put Ford on top. Unlike GM and Chrysler, Ford did not go through bankruptcy and receive billions of dollars of government loans to enable it to survive and restructure. The company went for a total overhaul of the company's product lines and technology during difficult times. It appears that the company's effort appears to be paying off- Ford's U.S. sales rose 43 percent against this month last year, while GM's rose just 12 percent and Toyota's fell 9 percent, due in part to several models having been pulled off sale until they could be fixed to resolve accelerator design problems that led to a massive recall. That was the first time since 1998 that Ford outsold General Motors. Its U.S. market share for February is estimated at 17 percent, up 3 percentage points from a year ago. Ford plans to build 595,000 vehicles in North America in the second quarter, up 32 percent from a year earlier. Moreover, the automaker reported its first annual profit in four years amid improving sales.

Ford has $34 billion of debt, and a credit rating that is less than stellar. Any improvement in that credit rating, or a reduction in debt, would likely mean millions added to the bottom line. With increased sales and a potential leadership position in the auto industry, Ford would find it easier to borrow money at lower rates and retire some of the worst debt the company has. Ford can use it’s increasing cash flow to cut down its debt load and increase net earnings. By grabbing more of the global market share of vehicles, Ford will have healthy cash flows which could be used to mightily improve the company’s finance and increase the net earnings per share. Executives at Ford have been working on shoring up the company’s finances for years now. They have been restructuring debt aggressively and will continue to do so. Having great sales figures just makes their job that much easier. Net earnings per share is going to be the most important metric to rate Ford by going forward, but increased sales should be a reliable precursor of what will happen to the net.

Ford is swiftly launching more fuel efficient and smaller engines--with direct injection and turbocharging--under the EcoBoost label, fitting them first to the 2010 Lincoln MKS sedan and MKT crossover and to the Ford Flex crossover and Taurus SHO performance sedan. Its revamped 2011 Edge crossover will offer a 2.0-liter EcoBoost four, and it has already shown its subcompact 2011 Fiesta and compact 2012 Focus--both offered as four-door sedans and five-door hatchbacks--to great acclaim.

Many analysts expect Ford to reinstate its dividend again, which once again would make ‘F’ an institutional grade investment.

The company's stock currently trades at a forward P/E (fye 31-Dec-11) of 9.61 and PEG Ratio (5 yr expected) of 0.92.

Full Disclosure: None.
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