Seeking Alpha
Follows Benjamin Graham method, deep value, value, long only
Profile| Send Message|
( followers)  

Summary

  • Ford is suitable for Enterprising Investors following the ModernGraham approach.
  • Ford is currently significantly undervalued by the ModernGraham valuation model.
  • The market is implying a negative growth rate for Ford's earnings, despite the company's demonstrated growth in the recent history.

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Highest Dividend Yields Among Undervalued Enterprising Companies. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Ford Motor Company (NYSE:F) fares in the ModernGraham valuation model.

F Chart

F data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - FAIL
  4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - PASS
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - PASS

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price$15.92
MG Value$73.84
MG OpinionUndervalued
Value Based on 3% Growth$27.81
Value Based on 0% Growth$16.30
Market Implied Growth Rate-0.10%
Net Current Asset Value (NCAV)-$6.26
PEmg8.30
Current Ratio2.85
PB Ratio2.38

Balance Sheet - 3/31/2014

Current Assets$155,288,000,000
Current Liabilities$54,535,000,000
Total Debt$101,116,000,000
Total Assets$207,082,000,000
Intangible Assets$0
Total Liabilities$180,309,000,000
Outstanding Shares3,995,000,000

Earnings Per Share

2014 (estimate)$1.20
2013$1.75
2012$1.41
2011$4.94
2010$1.66
2009$0.86
2008-$6.46
2007-$1.40
2006-$6.72
2005$1.14
2004$1.80

Earnings Per Share - ModernGraham

2014 (estimate)$1.92
2013$2.23
2012$1.80
2011$1.31
2010-$1.14
2009-$2.54

Dividend History

F Dividend Chart

F Dividend data by YCharts

Conclusion:

Ford Motor Company is suitable for Enterprising Investors but not for Defensive Investors. Defensive Investors have concerns with the lack of earnings stability over the last ten years as well as the lack of a strong dividend history over that time frame. The company passes all of the requirements of Enterprising Investors, though. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and its competitors by exploring the ModernGraham Valuation Index. From a valuation perspective, the company appears to be undervalued currently, after growing its EPSmg (normalized earnings) from negative $1.14 in 2010 to an estimated $1.92 for 2014. This demonstrated level of growth dwarfs the market's implied estimate of a negative 0.10% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls well above the market price at this time.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Ford Motor Company? Where do you see the company going in the future? Is there a company you like better? Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Be sure to check out the previous ModernGraham valuations of Ford Motor Company as well as dig through the Valuation Index to find other companies!

Disclosure: I am long F. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: Ford Motor Company - May 2014 Quarterly Valuation