Seeking Alpha
Recommended for you:
Long/short equity
Profile| Send Message|
( followers)  

Last year was one of the "best year ever" for Ford Motor Company (NYSE:F), according to the company's 4Q report released this morning:

Full year 2013 pre-tax profit of $8.6 billion, an increase of $603 million from a year ago, was one of Ford's best years ever; full year earnings per share of $1.62, an increase of 21 cents per share compared with a year ago

Full year net income of $7.2 billion, or $1.76 per share, including pre-tax special item charges of $1.6 billion and favorable tax special items of $2.2 billion

Highest full year Automotive pre-tax profit in more than a decade; record profits in North America and Asia Pacific Africa; about breakeven in South America; lower loss in Europe than last year

Full year top-line growth with wholesale volume and total company revenue up 12% and 10%, respectively, compared with a year ago; growth supported by year-over-year market share gains in the U.S., South America and in Asia Pacific Africa, which was driven by record market share in China; higher retail share in Europe

While 2013 was the best year for the Ford--the company -- the same couldn't be said for its stock, which lagged behind the S&P 500 and its close competitor GM (NYSE:GM). The problem?

Anxiety over rumors that CEO Alan Mulally is leaving the company for Microsoft. Now these rumors have been placed to rest, we believe that Ford's stock will catch up with the company, but it may take time.

What should investors do?

It depends on the investment horizon of each investor. In the short term, the stock may trade sideways, as it sees margin compression, and a slowdown in sales growth (see tables below). In the long term, the picture looks better for five reasons:

First, the company continues to be an industry pioneer in the introduction of new more-fuel efficient products that cater to different segments of the global economy, including the all-new Ford Fusion and Mondeo, Escape and Kuga, EcoSport in South Africa, and B-Max in Europe. On Monday morning, Ford introduced another efficient vehicle in the Detroit auto show, the aluminum F-150 pickup truck. "Ford's decision to roll the dice on aluminum illustrates a new risk calculus when it comes to meeting the US government's target of a fleet averaging 54.5 mpg by 2025," writes Mike Remsey of Wall Street Journal.

Second, the company's relentless efforts to cut cost and improve quality. Most notably, the churning out of new models that have captured consumer interest. One of its models, the Ford Focus, reclaimed the title as the world's top-selling car, while another of its models - the New Fusion - is closing in on Toyota's (NYSE:TM) Camry.

Third, the doubling of its quarterly dividend, from 5 to 10 cents per share, an appealing proposition for today's low interest rate environment.

Fourth, Ford was the only American automobile company that didn't receive government money during the 2008 crisis. Last year, both S&P and Fitch raised Ford's credit rating. And the company has plenty of cash at hand to cope with another downturn (see tables).

Ford Motor Company's Financials as of April 2013

Operating Margin

4.97%

Quarterly Revenue Growth

5.30

Quarterly earnings growth

-88.3%

Forward P/E

7.95

Total Cash

$24.10B

Operating cash flow

$9.04B

Source: Yahoo Finance

Ford Motor Company's Financials as of October 2013

Operating Margin

4.55%

Quarterly Revenue Growth

14.70

Quarterly earnings growth

18.6

Forward P/E

9.88

Total Cash

$25.10B

Operating cash flow

$9.36B

Source: Yahoo Finance

Ford Motor Company's Financials as of January 2014

Operating Margin

4.38%

Quarterly Revenue Growth

11.80

Quarterly earnings growth

-22

Forward P/E

10.85

Total Cash

$26.10B

Operating cash flow

$9.77B

Source: Yahoo Finance

Fifth, Ford has been very aggressive in addressing its European market woes by idling factories, cutting thousands of jobs, and taking a $3 billion charge over the next two years.

A few words of caution: Automobile stocks are highly cyclical. This means they are exposed to fluctuations in the global economy. That's why I would constantly keep an eye to the fragile global recovery, especially in Europe where even France and Germany seem to be headed for a contraction rather than an expansion.

Source: Will Ford's Stock Catch Up With The Company?