Your Earnings Season Preview: Ford

Mar.27.13 | About: Ford Motor (F)

Past Performance: Ford (NYSE:F) has missed EPS expectations five times over the past four years. As an illustration of the US economic recovery, there is no need to look any further than 2011 versus 2012. Ford missed EPS expectations in every quarter of 2011, and EPS shrank versus 2010 by an average of 19% each quarter on a YOY basis. Then compare 2011 to 2012, Ford was able to beat EPS expectations every single quarter. In the second half of 2012, Ford's earnings per share began to show growth. Looking at each individual quarter on a YOY basis, Ford EPS grew from just $0.34 per share in Q3 of 2011 to $0.40 per share in Q3 of 2012. The fourth quarter showed similar results, growing from $0.20 per share in Q4 of 2011 to $0.31 per share in Q4 of 2012.

The price action on Ford stock also shows Ford's ability to bounce back from near collapse. We all know that Ford was the only major auto manufacturer who didn't take a bailout, and that has helped Ford's public image. Consumers are more inclined to buy from Ford than they are competitor General Motors (NYSE:GM), who received bailout funds and defaulted on their federal loans before declaring bankruptcy.

Fundamentals: Ford has extremely strong fundamentals. F trades with a current P/E of 9.33, a forward P/E of 7.90, a P/S of .39, and a PEG ratio of 0.89. Those fundamentals blow away the industry average. The auto industry trades with a current P/E of 13.7 and a forward P/E of 16.6. Meanwhile, the S&P 500 average trades with a current P/E of 20.5 and a forward P/E of 17.3. Ford's metrics compared to both of those averages shows the extreme undervalued nature of the stock.

The balance sheet paints a rosy picture as well. Ford's total assets have grown by more than 15% from 2010 through 2012. Meanwhile, Ford's liabilities have grown by less than 8% in the same time frame. Ford is in the middle of substantial expansion as well. A look at the balance sheet makes this very apparent as the property plant and equipment assets have increased by 20% in the past three years.

The Story: In 2012 Ford's Fusion Hybrid came in tenth on a fuel efficient car sales list. The new Ford Fusion boasts 47mpg both on the highway and in the city. That MPG is better than rival GM's Chevy Volt, and comes in second only behind Toyota's (NYSE:TM) Prius. Ford enjoyed plenty of publicity when they proclaimed that the Fusion had 108mpg. The EPA disagreed with those claims through further analysis, but the 47mpg EPA rating is strong enough to launch Ford sales.

Combine the second best MPG non plug-in car with an aggressive growth strategy shown both on the balance sheet and the announcement of Ford creating 2,200 salaried jobs in Michigan throughout six plants. Ford is far better positioned to enjoy the economic turnaround in the US than GM, has the "buy American" angle over Toyota, and has the highest customer loyalty score out of any major auto manufacturer.

How to Play It: Solid fundamentals, loyal customers, and aggressive growth. Is there anything not to like? While the sequester may give Ford a slight headwind, lowering unemployment will help drive Ford sales higher as consumers enjoy having more disposable income. During the recession, consumers were doing everything they could to keep their vehicles glued together. As the economy grows more and more stable, consumers are going to trade-in those duct taped cars for newer ones. That is exactly what Ford is positioned to capitalize on. My personal 52-week price target: $16.50.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in F over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Always consult with your own registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.