Ford Motor Company (NYSE:F) operates in the global automotive industry with two segments: Automotive (Automotive brands include Ford and Lincoln) and Financials Services (Ford Motor Credit Company). On July 24, 2013, the company reported second-quarter earnings of $0.45 per share which beat the consensus of analyst estimates by $0.08. In the last year the stock is up 70.81% excluding dividends, and is beating the S&P 500, which has gained 17.39% in the same time frame. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying some stock in the company right now.
Ford currently trades at a trailing 12-month P/E ratio of 11.54, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 9.99 is currently inexpensively priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $1.76 per share and I would consider the stock cheap until about $26. The 1-year PEG ratio (0.79), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 14.63%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Ford boasts a dividend of 2.28% with a payout ratio of 19.1% of trailing 12-month earnings (or 82% based on free cash flow) while sporting return on assets, equity and investment values of 3.2%, 33.9% and 3.5%, respectively, which are all respectable values. The really high return on equity value (33.9%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison General Motors (NYSE:GM) operates at 16.1% and Toyota (NYSE:TM) operates at 10.5%). Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.28% yield of this company is good enough for me to take shelter in for the time being. The company just initiated the dividend back at the start of 2012, doubling it back in 2013 and I have no doubts it will continue to raise it in the future with the low payout ratio.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle ground territory with a value of 59.04 with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is above the red line with the divergence bars decreasing in height to the downside, indicating the stock is about to have downward momentum. As for the stock price itself ($17.35), I'm looking at $18.26 to act as resistance and $17.22 to act as support for a risk/reward ratio, which plays out to be -0.75% to 5.24%.
- Auto sales in China rose 11% in August according to the China Associate of Automobile Manufacturers, which is the highest pace in the last four months.
- The auto sales in Europe are stabilizing after five years of declining sales.
- Jeffries raises their estimates on the company stating the company has enough production capacity to meet demands including gains in Europe and China.
Ford is inexpensively valued based on future earnings and on future growth prospects (one-year outlook). Financially, the dividend payout ratio is low based on trailing 12-month earnings and I don't doubt management will be able to continue to increase the dividend going forward. The technical situation of how the stock is currently trading is telling me we might be seeing some more downward pressure, albeit very minimal for now. The bullish sentiment for China and Europe, high ROE and excellent fundamentals are what I like about the company, making it a buy at these levels.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!