Ford Motor (F) the iconic automaker, in the midst of an incredible turnaround, in both the overall quality perception of its cars and trucks, as well as financial results, reports its 3rd quarter 2013 financial results before the bell on Thursday, October 24th.
Consensus expectations by the analyst community are looking for $0.37 in earnings per share (EPS) on $34.18 billion in revenues, for expected year-over-year growth of -8% and +13%, respectively.
Analyst estimates have drifted higher since the July 13 earnings report. Also, Ford has printed big upside earnings surprises the last four quarters, mostly in the high teens.
Probably the big question a lot of people are asking is that with two solid months of auto and truck sales, and even record Ford F-150 truck sales, in August and September 13, why hasn't the stock decisively broken out over the recent high near $18 and then the Jan 11 high near $18.99?
The chart below shows F has not made a material new high since the July 13 earnings report.
So what gives?
Negative numbers may be rounded for presentation purposes
Source: Ford 10-Q and earnings reports
While Ford's North American pre-tax auto margin has been at record levels since - well - mid 2012, surpassing the high single digit profit margins of the pre-2008 era, F's overall margins continue to lag thanks to Europe primarily and the volatility in South America.
Basically North America and Europe are 85% of F's revenue and 90% operating income, and - from looking at the above table - Europe continues to be the drag.
With Europe improving, perhaps the European auto business isn't far behind. Just flat margins in Europe (and no slide in North American pre-tax margins) might push Ford above the magic 10% level in terms of global auto margins.
In terms of valuation, we still think F is fully valued in the mid $20s in terms of the auto business. (Building the above tables, what we found very interesting is that Ford Motor Credit, while just 1% - 2% of F's total revenues, has a pre-tax operating margin of 12% - 15%.)
We think F is in the late 6th, early 7th inning of the full-valuation ballgame. However a trade above the Jan 11 high of $18.97 could mean another 20% move in the stock.
The dividend yield is 2% and Ford's balance sheet is improving rapidly thanks to cash-generation.
Here is a table of F's valuation metrics based on current estimates:
Ford's Valuation Metrics
|2014 EPS est||$1.77||14%|
|2013 EPS est||$1.55||10%|
|2014 rev est||$146 bl||4%|
|2013 rev est||$140 bl||10%|
|Price to Bk||3.72(x)|
|Div yield||2%||doubled last 2 yrs|
we've been bullish on Ford for awhile. Here are our previous articles when we started writing on it.
Here is our first article on F in July, 2012.
We've been bullish for some time, and it paid off this year. A real Europe recovery is the next catalyst, but don't overstay your welcome.