Ford Motor: A Buy Or A Sell?

| About: Ford Motor (F)


The auto industry is growing quickly in China, and that will benefit Ford.

Ford has great growth opportunities in the Middle East and Africa region.

Attractive for dividend investors.

2013 was a good year for Ford Motor (NYSE:F). The company has shown decent growth in its top and bottom lines, and delivered a high return on equity. Although, its share price moved only 19% last year, but the company also rewarded its shareholders with a 50% increase to its dividend. Year-to-date, the stock surged more than 8%.

Ford operates in the auto industry. As the auto market in the U.S. is saturated, major automakers like Ford are expanding their operations in emerging markets, particularly China, where they have promising growth opportunities. Most of the company's future growth will come from China and other emerging markets. Ford is not the strongest player in the Chinese auto market, but it is experiencing strong growth in the region. The company's sales in China increased 49% during the last year while its market share rose to 4.1% in 2013, up 0.9% from 2012.

China is the world's largest auto market. The Chinese auto market is expected to expand significantly in the coming years that will help Ford to grow. In the last ten years, auto demand in the country increased 30% to 40% annually. Last year, the sales rose 13.9% to 21.98 million vehicles. China's auto demand is expected to grow between 8% to 11% this year. Ford expects that China's auto industry will grow between 7.5% and 8% this year.

Ford is investing heavily in China to gain more market share. By 2015, it aims to capture 6% of the Chinese auto market. The company is constructing a new plant in the eastern city of Hangzhou that will be able to build 250,000 vehicles a year when it's completed in 2015. By 2015, Ford expects its Chinese production capacity will reach 1.2 million passenger cars, double the level of 2012. The company hopes to sell more than one million vehicles in the country this year. The automaker expects that 40% of its total unit sales will come from China by the end of the decade. By 2020, Ford projects that more than 1 billion Chinese will be able to afford a car.

Ford will introduce its Lincoln cars in China to compete with luxury car manufacturers like Audi AG, BMW AG, and Mercedes-Benz. Ford will sell five Lincoln models by 2016 through 60 dealerships in 50 Chinese cities. The company sees growth potential for Lincoln in China's luxury car market. The luxury segment constituted 7% of the Chinese auto industry in 2013. The Chinese premium car market is estimated to grow at a CAGR of 12% till 2020. Growing premium car market will allow Lincoln brand to grow in China. However, one obstacle in the growth could be that Ford will not manufacture Lincoln cars in China, it will import them from the U.S. This will require the company to pay high import duty on foreign vehicles. High import duty will increase the price of Lincoln cars, as a result, customers would prefer the locally produced German cars, which are already famous among Chinese.

Last year, Ford announced its fifth business unit - Ford Middle East and Africa. The unit combined four separate regions - North Africa, Sub-Saharan Africa, South Africa and the Middle East - into a single business. The company sees great growth potential in these markets. Ford Middle East sales in 2013 increased 12% year-on-year to 85,000 units. Auto sales in the Middle East and Africa region are expected to grow 40% to about 5.5 million units by 2020. South Africa is its second largest volume market in the region after Saudi Arabia. New passenger car sales in South Africa are estimated to grow by 5.1% in 2014 while the light commercial vehicle market is expected to grow by 7.2% in 2014. To benefit from these growing markets, Ford plans to launch 17 new or refreshed vehicles in the Middle East and Africa over the next two years. The new business unit is expected to sell around 220,000 units in 2014.

Ford is also attractive for dividend investors, offering a current yield of 2.90%. Ford suspended its dividend before the financial crisis, but reinstated distributions in the first quarter of 2012. The company increased its dividend by 50% last year. In Q1 2014, it declared dividend of $0.125 per share, a 25% increase from the level of dividend paid in each quarter in 2013. Analysts are expecting that the company will report revenue of $140.20 billion this year and $148.86 billion next year. EPS is estimated to be $1.32 and $1.91 in the current year and next year, respectively. As the company's revenue is expected to grow, so are its dividends. Its current dividend payout ratio is 27%, which leaves room for future payout growth. With more than $12 billion in cash, it has the ability to pay dividends for at least 15 years.

Bottom Line

Future of Ford looks bright. The company has much room to grow in China. The introduction of Lincoln brand in China will help to capture market share in the premium car market. The Middle East and Africa region also represent a range of growth opportunities. The strong financial position of the company will allow it to pay dividends for years to come. In my opinion, Ford is an attractive investment for long-term investors.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.