After painfully navigating through the 2008 – 2009 economic crisis, Ford (F) is finally gaining investor confidence with strong fundamentals, and an impressive 2013 model line-up.
Ford exceeded Q4 2012 analyst earnings estimates by over 19%, earning 31 cents per share. Additionally, the company surpassed Q4 revenue expectations (actual: $36.5 BB vs. analyst: $33.17 BB), and reported increased sales for the month of December across the board – US (22%), South America (11%), Asia Pacific (47%), and Africa (47%)1.
The only black eye on company financials were European numbers, Q4 European revenue declined by 22%. Unfortunately, losses in Europe are expected to continue in 2013.
Despite European concerns, Ford is exhibiting strong fundamentals based on Market IQ Pro Metrics. Market IQ places Ford in the top-right quadrant of the Quality-Value chart (see below), indicating high Quality and good investment Value. Ford’s Quality is better than 70% of its peer group, mainly due to strong profitability, sustainable growth rate, and cash flow. Additionally, Ford is currently trading at a Price-to-Earnings (P/E) multiple of 2.97 and a Price-to-Cash Flow (P/CF) multiple of 2.35. Both these multiples are relatively lower compared to General Motors (GM) and Honda (HMC)2, suggesting better investment Value associated with Ford.
Along with stunning earning and compelling valuation parameters, Ford doubled its dividend payments to 10 cents per share.
Ford has great Quality numbers, but a major concern with Ford is company’s exposure to debt. Hence, Market IQ tags Ford with lower Financial Strength relative to GM and HMC. Maybe some of the profits can be used to reduce company’s exposure to debt?
Social sentiment for Ford has been consistently bullish since July 2012. Looking past the normal volatility in the Sentiment chart below, we only see bullish spikes in sentiment – no pre-dominant negative sentiment dips except on October 25, 2012 when the company announced layoffs. However, here is an interesting insight: when we evaluate the year, it has not been all positive news for Ford:
- July 25: Ford announces earnings, profit falls 57% to $1BB mainly due to results in Europe
- September 18: Ford sales fall 29% year-over-year in Europe
- October 2: US car sales soared in September to highest level since Feb 2008. GM Chrysler post sales gains in September; Ford flat
- October 25: Ford cuts 5700 jobs
- October 31: Ford reports strong earnings, lays out European restructuring plan, and Goldman Sachs raises price target to $15
- December 3: Ford recalls selected 2013 Escapes & Fusions
- January 3: Ford posts best December sales since 2006
- January 10: Ford doubles dividend
Market IQ maintained a strong bullish social sentiment on Ford since July 2012, based on chatter pertaining to the company on various social media channels. Interestingly, Ford’s stock price has correlated strongly with Market IQ’s bullish sentiment, moving from $9.4 to $13.18 – a 40% move in 6 months (see below for Social Sentiment chart).
The company’s management has its sights set on long-term organic growth, as Ford transitions to a leaner, innovative, global company. The question is, as an investor do you have the patience to stomach a long-term roller coaster ride?
- General Motors (GM)is trading at a P/E multiple of 10.5 and a P/CF multiple of 3.7, and Honda (NYSE:HMC) is trading at a P/E multiple of 16.6 and a P/CF multiple of 6.4
Fahad Kamr, CFA
This commentary is for informational purposes only and does not constitute investment advice. The opinions offered herein are not recommendations to buy, sell or hold securities. Market IQ expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.