In its first-quarter earnings report in April, Ford (NYSE:F) announced that it earned its highest North American profit in more than a decade. This optimistic news is a far cry the dire situation the company was in following the 2008 financial crisis when the stock plunged to below $2 a share. With a strong first-quarter earnings report and a rising share price, is it finally time to get behind the wheel and buy Ford? Let’s use relevant sections from our CHEAT SHEET investing framework to see whether Ford is an OUTPERFORM, WAIT AND SEE, or STAY AWAY.
C = Catalyst for the Stock’s Movement
Ford has experienced a remarkable run since the company bottomed out during the financial crisis. CEO Alan Mullaly steered the company out of hard times by focusing on offering smaller, more fuel-efficient vehicles and divesting a series of luxury brands that it owned, including Land Rover and Jaguar. Ford’s management team seems to have figured out its domestic business. Last quarter, the company recorded its highest North American pre-tax profit in more than a decade at $2.4 billion.
The same cannot be said for Europe and South America. Ford posted negative profits in both markets this past quarter. Some of these losses can be attributed to unfavorable exchange rates — the dollar appreciated against certain currencies in South America — but Ford still has a long way to go in solidifying its position overseas. With an aging vehicle fleet in Europe and a slowly improving economy, demand for new cars in Europe will rise. Ford is in a good position to take advantage of imminent new vehicle purchases by Europeans. The company has increased its marketing presence in Europe and is producing smaller and more fuel-efficient cars, such as the Fiesta and the Focus, that have greater appeal to the tastes of European consumers.
E = Excellent Relative Performance to Peers?
Based on trailing price-to-earnings figures, Ford looks relatively cheap when compared with its chief competitors, GM (NYSE:GM) and Toyota (NYSE:TM). Ford is trading at a trailing price to earnings multiple of 10.43; GM trades at a slightly higher multiple of 11.59, and Toyota’s is significantly higher at 15.71. Based on analyst growth estimates over the coming year, it makes sense why Ford is trading at a lower multiple — its projected growth in earnings is zero, while GM and Toyota are both expected to increase their revenue growth. Still, the numbers suggest that Ford offers the best value of the three.
From a dividend perspective, Ford is the clear winner. It offers a 2.6 percent dividend yield, more than double that of Toyota’s. GM does not offer a dividend at this time, discontinuing it after the 2009 bailout. Ford trumps both GM and Toyota when comparing ROE numbers between the three. This is unsurprising due to Ford’s strong management team and its competitive advantages in product offerings and its manufacturing processes.
|Growth Est. (2013)||0.0%||2.2%||10.1%|
|Return on Equity||34%||15.2%||9.09|
T = Technicals are Strong
Ford is currently trading around $15.50, above both its 50-day moving average of $14.91 and its 200-day moving average of $13.43. The stock has experienced mostly upward momentum over the last twelve months. Additionally, the stock price has surged since it announced its first-quarter earnings in April. It is trading near its 52-week high of $16.09. Investors should be wary of the sharp ascent of the share price over the past six months. While Ford had a strong first quarter, such a rapid increase in a stock’s price can signify that it is overbought, and a selloff period could begin.
Expect Ford to continue its positive momentum over the next few quarters. Its strong domestic numbers and continued investment into Europe and emerging markets should begin to show positive operating profits by the middle of the decade. Additionally, Ford is trading at a relatively low price-to-earnings ratio compared with its competitors, suggesting that it is cheap at its current share price.
The company seems relatively strong compared to its competitors — GM had a shaky first quarter and Toyota is exposed to economic uncertainty in Japan. At around $15.40, Ford is trading at a reasonable price and it should continue to report strong earnings throughout the year. For now, Ford is an OUTPERFORM.
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