The speculation regarding Ford (F) CEO Alan Mullaly's departure from the company has been quelled, temporarily, with the Executive reiterating his position that he will be staying with the company through the end of 2014. The possibility of retirement at the conclusion of 2014 still looms, but for now Ford has their man. F's stock price has been predominantly stuck in a specific range, trading almost exclusively between $16.50 and $17.50 for the last few months after shooting up almost 19% in the first six months of the year. The question now is, what happens after 2014?
Ford's Financial Position
The following table shows a few ratios that help interpret the financial health of Ford and some of its competitors.
|Current Ratio||Debt Ratio||Financial Leverage||Payout Ratio|
|General Motors (GM)||1.30||0.78||5.85||N/A|
|Toyota Motors (TM)||1.09||0.35||2.86||13.30%|
|Honda Motors (HMC)||1.26||0.29||2.65||30.40%|
Data collected from Morningstar.com
Although Ford is very highly leveraged that is partially due to Ford Credit and its functioning, which distorts the company's balance sheet to make it appear to have much more debt than it really does. The workings of Ford Credit and the way it "trades debt" is described in this article by fellow Seeking Alpha contributor Jacob Steinberg.
So excluding financial leverage (it was only included because I felt it necessary to address the illusory nature of the figure) Ford seems to be very comparable to GM, Toyota and Honda when overall health is concerned. Ford has a significantly higher current ratio than its peers but also has a higher debt ratio, so there is really a trade off here. It's clear that none of these companies have a large advantage over the others when all of these ratios are considered.
Given that Ford and its competitors are presently akin in terms of overall financial health, it's important to look at the future. Ford currently has a trailing P/E of 11.58, a forward P/E of 8.97 and a 5-year PEG of 0.68, according to Yahoo Finance. This indicates that shares are currently undervalued right now based on growth estimates. When these figures, combined with upcoming catalysts such as the new, stylish 2015 Mustang that car enthusiasts are raving about as well as their ongoing push to gain market share in emerging markets, Ford looks like it's going to enjoy high profitability over the next few years.
There is little to no debate within the investor community that Mullaly has done tremendous work that has yielded a palpable influence in Ford's ascension from the doldrums its stock price once saw in the bottom of the financial crisis. It is, however, difficult to measure exactly how much of this change is directly attributable to him. Personally, I would credit a very large percentage of Ford's progress over the years to Mr. Mullaly. On the other hand, his work will not magically come undone upon his farewell. Ford will still be in a strong financial position with good growth prospects and strong presence in the world car market. Ford's is a buy at current levels.