Ford: A Strong Product Line-Up Will Drive Growth

Ford (F) shares have gained impressive momentum of late as the company reported its highest sales numbers for the month of September in about 11 years earlier this month. Ford had sold over 140,300 vehicles in the European markets and approximately 168,522 vehicles in the United States in September.

More importantly, the company gained traction in all categories such as passenger cars, SUVs, and trucks, which is good news.

Ford’s retail cars sales grew 15%, with Mustang sales growing to 9,456 units, a rise of 199%, which is the best sales performance for September since 2007.

Also, its SUVs sales expanded 27% during the month, with all-new Edge up, new explorer and Escape growing 33%, 38%, and 31% respectively. Meanwhile, the company managed to grow its truck sales by 29% in September, with F-series sales growing 16% to 69,651 trucks.

Sales of new models and vehicles with the EcoBoost drove this fantastic sales numbers for Ford, during the month. In fact, Ford has refreshed 50% of its line-up in 2015, with expressive and exciting products. This should lead to better financial performance for the third-quarter. The analysts are expecting earnings of $0.48 per share on the revenue of $35.44 million for the third quarter of 2015.

A renewed Transit Line-up and Ranger pickups will gain traction in Europe

Ford looks great with its commercial vehicles to tap the larger share in the European market. Its transit lineup and ranger pickup have helped the company to become the best selling commercial vehicle brand of late. Its commercial vehicles sales have grown from 8.5% in 2012 to 12.5% in 2015.

Looking forward, the company expects better sales for its commercial as well as passenger vehicles in Europe, as it sees moderate expansion with Euro Area, which is expected to grow around 10% this year. Moreover, the company is continuously expanding its utility vehicles such as SUV and AWD products to tap these fast growing markets.

It has redesigned 5 all new vehicles in the SUV segment, starting with the Edge. It expects its Ford SUV sales to grow more than 200% in 2016. Also, it expects its AWD sales to grow 50% in the fiscal year 2016.  The chart below illustrates its commercial vehicles sales and their market shares that have grown significantly this year. All of these should expand its margins this year and deliver healthy results for Ford.

Consumer spending to grow significantly in Europe

Ford remains on track to capitalize on the expected growth in consumer spending in across many economies in Europe. The company will be able to sale more vehicles to its customers with the growth in employment, which should drive its sales this year and into 2016.

According to Bloomberg, the unemployment in Germany dropped to a record low, as the labor market continued to underpin the country’s position as Europe’s economic powerhouse. In fact, Germany expects its economy to grow 1.8% this year. The incredible performance in the labor market with rising wages and increasing employment should support this growth.

Also, as per Reuters, the consumer spending grew to a record high in about five years in the second-quarter this year. According to figures published recently based on credit and debit card transactions from visa Europe, The British consumer spending grew 1.4 percent on the year in the three months to June, the biggest increase since the second quarter of 2010.

Conclusion

Ford Motors is a good investment, as the company is improving its sales figures in the United States as well as in European Markets. Also, it is expanding its utility vehicles in Europe that should deliver better margins and improve its financial performance this year. Moreover, the company is cheap as it trades at the trailing P/E of 15.93 and forward P/E of 7.64, indicating a lot of growth for its earnings in the future. In fact, the analysts expect its earnings to grow at CAGR of 22.17%, which is quite high as compared to industry CAGR of 15.63% for the next five years.

Published on Oct 15, 2015
By Harsh Singh Chauhan

Copyrighted 2016. Content published with author's permission.

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