The automakers have not been getting any love since the 2008/2009 saga as covered in this recent SA article. Ford Motors' (NYSE:F) January sales disappointed, no doubt but the same can be said about Ford's competitors given their recent earnings. Ford's so called disappointing numbers were put into context by General Motors' (NYSE:GM) own terrible numbers.
With the long term picture in mind, this article presents a few reasons why Ford is getting us interested here. Let us get into the details.
Recent High Yield: Ford's dividend growth and the share price being down 3% since 2014 began has pushed Ford's current yield to levels not seen since the reinstatement in 2012. The chart below shows 2.84% but it has actually gone to almost 3.40% as of this writing. Just for the record, General Motors' new dividend also puts its yield at 3.40% but Ford has a much better dividend coverage than General Motors as written here.
The table below shows what the Yield on cost could look like in 5 years if Ford is bought at the current price. The assumed annual dividend growing is just 7% per year. That is a much lower dividend growth rate than what Ford has managed so far but it is better to be conservative given the auto industry's history.
Price Range: The 52 week range by itself shouldn't convince an investor to buy/sell a stock. For example, a stock with soaring earnings will keep pushing above its 52 week high. The same can be said about a stock with declining earnings and a 52 week low. But if a company has beaten earnings estimates for each of the past 4 quarters at least but the stock is still at the low end of its trading range, it might be a chance to buy. Ford is right now at the middle of its 52 week trading range ($12 to $18) and a few more down days will firmly push it to the lower end.
Earnings Surprise: Talking about earnings estimates, the table below shows that Ford has beaten estimates each of the past 4 quarters. As a comparison, General Motors has beaten estimates three out of four quarters and in the most recent quarter it disappointed by 25%. This by itself is not a reason to buy but it does show that estimates are perhaps a bit more pessimistic for Ford that for its major competitors.
(Source: Yahoo Finance)
Valuation: On a trailing basis, Ford appears cheaper than General Motors. Sure, Ford's earnings are expected to fall in 2014, to about $1.37 per share. Even that represents a fairly low forward multiple of 10 based on current share price, almost in line with General Motors' forward multiple. But investors must keep an eye on falling estimates, which can be tracked on Yahoo Finance.
January Report: Yes, the same disastrous January 2014 report that came out recently. While everyone focused on the big negative that the company sold 7% lesser vehicles than it did in 2013, the following aspects were not given enough weight:
- The F-Series still remained strong, and it was down only a meager 0.7 percent in 2014 versus 2013. And everyone knows about the significance of the F-Series to Ford.
- Ford's average transaction price year on year increased the most among the 8 companies profiled in the link below. Whether that means Ford's manufacturing costs have increased or the company is marking up its product, it shows the pricing power the company has.
- Even in the dreaded "vehicles sold" category, Ford did better than the other two in the "Big three", General Motors and Toyota Motors (NYSE:TM).
More details can be found in this well written piece.
Wish-list: After mentioning the 5 things we like about Ford, here is a suggestion for the management. Ford currently has 3.87 Billion shares outstanding shares and that has grown about 35% in the last five years. Ford's cash pile is huge and some of that can be used for big buybacks. Needless to say, buybacks will enhance earnings per share and also save the company some money on dividends. Yes, Ford does require a lot of cash for its operations but a cash pile of $26 Billion for a company with market cap of $59 Billion seems plenty. On the debt side, remember bulk of it is due to the credit operations.
Conclusion: Though we've stated these positive points about Ford before, it is worth highlighting them again:
- A huge cash pile
- A new commitment to shareholders (which talks about reducing pension liabilities and rewarding shareholders through dividends)
- Reasonable valuation
- An Iconic brand name
- A growing dividend
- A CEO so well respected that he was thought to be the frontrunner in the Microsoft CEO race, despite his limited technology experience.
While all these points mentioned above have been there for quite some time, the current yield of 3.40% is a bit tempting to pass on, given the turnaround potential that exists with Ford.