We have upgraded our long-term recommendation on
Ford Motor Co.
) to Neutral. The largest automobile producers is benefiting from
its investments in the emerging markets and focus on hybrid
vehicles. However, we are concerned about higher structural costs
and the economic uncertainties around the world, which may affect
the company's profitability.
Ford is expanding its foothold in the emerging global markets
including Argentina, Brazil, China, India and Thailand. The company
expects that 70% of its global expansion will be in Asia, primarily
China and India. It anticipates that these investments will
eventually bear fruit with a 50% improvement in sales to 8 million
vehicles in 2015. Small cars sales contribution is expected to go
up to 55% of its total sales by 2020 from 48% currently.
Ford's continuous focus on hybrid vehicles has played a crucial
role in its revival since late 2006. The company plans to invest
$135 million for its next-generation hybrid-electric vehicles for
developing the key components, including advanced battery
It also mulls the introduction of five fuel-efficient
hybrid-electric vehicles this year including Focus Electric, C-MAX
Hybrid, C-MAX Energi plug-in hybrid, new Fusion Hybrid and Fusion
Energi plug-in hybrid. Thus, the company aims to reduce the cost of
its current hybrid system along with improving production capacity.
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However, the company has been replacing its older vehicles with new
models to provide customers with smart technology, outstanding
safety, excellent fuel efficiency and high quality standards with
greater comfort. This initiative involves an increase in commodity
and structural costs. Ford expects a roughly $2 billion increase in
its automotive structural costs in 2012.
Ford, in the second quarter of 2012, registered a 39% decline in
its profit to $1.20 billion or 30 cents per share from $1.98
billion or 49 cents in the corresponding quarter of 2011. However,
the earnings per share surpassed the Zacks Consensus Estimate of 28
Revenues dipped 6% year over year to $33.3 billion, due to lower
operating results in all regions, except North America. However, it
exceeded the Zacks Consensus Estimate of $32 billion.
Ford, which competes with
), maintains a Zacks #3 Rank, which translates into a short-term (1
to 3 months) Hold rating.