Ford: A Recovery Cannot Be Ruled Out

The weakness in the Chinese stock market has led to a drop in Ford’s (F) shares this year. However, despite the end-market weakness, Ford has been able to outperform analysts’ estimates in recent quarters. For instance, for the second quarter of 2015, Ford’s revenue of $37.3 billion exceeded analysts’ revenue forecast for the quarter of $35.34 billion.

The year-over-year improvement in the financial performance of Ford indicates robust sales growth for the quarter, partially driven by steadily improving global economic conditions and strategic cost-optimization initiatives undertaken by the company.
Going forward, Ford should be able to pick up pace due to the company’s product development moves as discussed below.

New products will power growth

Ford recently launched a range of new products including, the all-new Ford Edge designed to excite its driver with superior technologies for easing and enhancing the overall driving experience. The introduction of all-new S-Max in Europe targeted towards combined family travel with enough space for nearly seven people to enjoy an elegant drive.

The company strategically introduced the new Ford Explorer equipped with a 2.3-liter EcoBoost engine and superior technology which is also available in high-end Platinum series model. Moreover, Ford launched the all-new MKX in North America which is an elegantly designed most luxurious SUV till date.

Ford had also reported $1.9 billion in operating cash flows with 2 percent expansion in wholesale volume, primarily allowed by Europe and North America. The key automobile manufacturer’s international market share improved to 7.6 percent, an increase of one-tenth of a percentage point compared to last year. Ford strategically completed 12 out of 16 targeted worldwide innovative product introductions in the quarter with remainder still under development.

Ford also launched SYNC 3, which is the all-new entertainment and communications system. Importantly, Ford has reconfirmed its 2015 pre-tax profit guidance in $8.5 billion to $9.5 billion range, with improved automotive operating cash flows, operating margins and revenue compared to 2014.

The key automobile manufacturer is believed to be highly confident on its high-growth delivering business model and thus, it’s increasingly launching new and innovative vehicles across all the major automobile segments including, hatchbacks, small cars and SUVs. Hence, Ford is estimated to benefit hugely from the ongoing slow but steady global market recovery, accelerating the demand for newer vehicles.

Conclusion

Ford shares might have lost steam in 2015, but the good thing is that the stock is cheap. The company trades at 14.6 times last year’s earnings, and the multiple goes down to an even more affordable 7. Additionally, Ford’s PEG ratio of just 0.51, below the ideal 1, indicates further undervaluation. Thus, I think that Ford looks like a good investment for the long run due to a variety of reasons discussed above.

 
Published on Sep 30, 2015
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

Posted in ...