Ford Motor Company (F) has had quite an impressive run. They had the good fortune to avoid a government bailout, have developed some stylish and compelling cars and are on a pace to report great year over year sales figures in 2011. In Q1 2011, the company announced their best first quarter profit in over a decade announcing $2.6 billion for the quarter. Over the past two years, Ford has ranged from the $5 area to as high as $18. With Ford now sitting at about $15, an auto sector recovery happening and better branding, is the equity a buy right now?
I would think that the answer is a resounding yes. There is a lot happening in the auto sector now, and with the production issues being experienced by some Japanese brands, Ford stands a good chance of maintaining market share and perhaps even growing it. General Motors (GM) went public late last year, and Chrysler is perhaps seeking to do the same this year. These events keep the Big Three Detroit automakers in the news and investors will want to seek out value if they are looking to participate in the automotive sector. Even in tough economic times Ford has been able to raise the average cost of a vehicle by 250 while still posting good sales figures. Not all high volume automakers have been able to match this performance. That $250 increase translates to $250 million dollars in additional revenue on each 1 million units sold.
Ford does carry a mountain of debt with $16.6 billion on the books, but the company has been paying it off chunks at a time. In Q1 the company paid off 2.5 billion. While 16.6 billion may seem like a lot, it pales in comparison to the $26 billion that was on the company books just 5 years ago. Trimming debt allows the brand to improve their credit rating, offers flexibility in new less expensive financing, and also improves their balance sheet. Ford, with a good balance sheet, can become an attractive investment as 2011 progresses.
Perception on Ford is also good right now. The company has been a leader in getting to the "digital dashboard" to the masses with products like Sync and MyFordTouch. This factor alone gives Ford some advantage over other brands, as consumers want bang for their buck, want to stay connected, and want something stylish.
In addition, Ford has already announced plans to revamp the Lincoln line. Lincoln has some great cars, but let's face it, their appeal has been to an older crowd. If Lincoln can revamp styiling to appeal to a wider demographic, it could be compelling.
I think that as 2011 continues to march along and as investors gain confidence in the auto sector that stable companies with good balance sheets will benefit. Ford seems to be in a great posiotion to be such a company. They simply seem to be hitting on all cylinders and a buyer at about $15 could benefit nicely.