Ford Motor Company (NYSE:F) Good For The Long Haul

This past week the markets have taken a bit of a tumble and Ford Motor Company was one stock that was hammered this week.  Usually when I talk about being sub 15 I am talking about a 5k.  However, that is not the case today.  I am talking about Ford Stock dropping to under 15 bucks a share, a level that I did not think we would see again for the stock.

 

                Before my critique of the stock let’s get a little background information about the company from this summer.  Ford is working on the new Aluminum F150.  This has caused a shortage of current F150’s because production has stopped.  This has occurred to change over tooling in the F150 plant because the Aluminum requires a whole new set up.  Ford has purposely constricted the current fleet of F150’s so do they do not run out.  This has caused summer sales to be flat and delivering lower profits.  Along with this there have been major problems with production in South America.  South America is having a major currency and inflation issues, therefore making it hard to get the cash needed into the country.  There have been shutdowns in production and lower sales volumes because of this which will cause a cost of around $1billion.  This is nothing to sneeze at.  Recalls, recalls, recalls!  That what the auto industry is known for lately and Ford has not been immune to this.  Recalls raise costs once again especially the warranty costs.  Automotive companies use warranty, basically part insurance, to make money, but when you have to recall hundreds of thousands of cars, you are not going to be making much money off of these.  Once again this lowers EBITDA (Earnings before Interest, Tax, Depreciation and Amortization).  All of this has led to lower profit margins or around 8-9% compared to that of previously forecasted 11%.  This is still a little better than Fords Detroit competitor General Motors.  Much of this information was gathered from Mark Fields (CEO) meeting with Wall Street Analysts earlier this week walking about the earnings forecast for the rest of the year. 

                

A Diamond in the Rough?  Could Ford be considered a ‘Diamond in the Rough.’  After this week’s less than stellar news Fords stock shot down around 7% to its first time under $15 bucks in a while.  I would put this stock very close to a spec stock (a volatile, higher risk stock, with a lot of potential up and down side).  One positive piece of information that came out of this week’s information from the CEO is that Gross Revenue has actually increased a good amount from the past year by over a billion.  I look at this as a win even though Net Revenue is down.  I say this because the situations noted above are the main reasons that they have not met their Net Expectations.  Along with this, Ford has 23, yes 23 new launches across the world this year.  That is HUGE!  But, is also extremely capital intensive.  Manufacturing, especially in automotive is not cheap and takes an extreme amount of capital to make products which can have a negative effect on free cash flow, as Ford is seeing now.  That is many have chosen to dump the stock. 

              

  So what does this mean to the investor?  In my eyes, I see a tremendous buying opportunity to get a relatively healthy company at an extremely great price.  All this Wall Street non sense has created an arbitrage opportunity for those who can see past this.  If I were to buy a stock, I would buy Ford.  I would place my bet on the new F150 continuing to be a leader in trucks and doing even better than ever.  I have not heard anything bad about it and its performance thus far (except for cracking aluminum in the production process!).  Along with this Ford is slowly but surely gaining market share across the world especially in Europe and Asia.  With all the new launches of previously successful cars and even some new ones exclusive to different markets, this could bring revenue to record levels for the past few years.    Ford is far from the value blue chip stock it used to be and who knows if it can get back to that level in the near future, but I believe at its current price, it’s a great buying opportunity for someone who can bear with a bit of risk.  Oh and do not forget its .50 cent dividend.  Below are some technicals.  Feel free to comment and open up discussion on this analysis.

 

Valuation Measures Ford

 

 

Market Cap (intraday)5:

57.36B

Enterprise Value (Oct 1, 2014)3:

150.56B

Trailing P/E (ttm, intraday):

9.10

Forward P/E (fye Dec 31, 2015)1:

8.50

PEG Ratio (5 yr expected)1:

1.15

Price/Sales (ttm):

0.39

Price/Book (mrq):

2.14

Enterprise Value/Revenue (ttm)3:

1.03

Enterprise Value/EBITDA (ttm)6:

13.00

 

 

Valuation Measures General Motors

 

 

Market Cap (intraday)5:

51.25B

Enterprise Value (Oct 1, 2014)3:

62.93B

Trailing P/E (ttm, intraday):

26.80

Forward P/E (fye Dec 31, 2015)1:

7.05

PEG Ratio (5 yr expected)1:

0.73

Price/Sales (ttm):

0.33

Price/Book (mrq):

1.31

Enterprise Value/Revenue (ttm)3:

0.40

Enterprise Value/EBITDA (ttm)6:

6.69

 

 

Industry Statistics

 

Market Capitalization:

13,470B

Price / Earnings:

14.4

Price / Book:

1.6

Net Profit Margin (mrq):

4.5%

Price To Free Cash Flow (mrq):

-279.1

Return on Equity:

12.0%

Total Debt / Equity:

172.1

Dividend Yield:

2.1%

 

**All this is public information

 

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