Can Ford Deliver on Its Promises?

Jun. 8.11 | About: Ford Motor (F)

Ford (NYSE:F) CEO Alan Mulally has now turned in seven quarters of profits for shareholders. The company proclaimed 50% sales growth by 2015, which the lion's share of growth coming from China and India. Currently Ford is playing catch-up in those two markets, where rivals General Motors (NYSE:GM) and Toyota (NYSE:TM) have a significant head start.
The other piece of good news comes from Ford CFO, Lewis Booth, who said net debt would be cut by $2.6 billion to around $14 billion by the end of June. Ford is no longer in survival mode, as these executives claim; but rather in growth mode. Astonishingly, a whopping 55% of Ford sales will come from small cars by mid-decade. Large SUVs and popular Ford pick-up trucks have dominated Ford sales and profitability for the last decade. Back in 2006, Mulally came into his job with a meeting of 300 of Ford's top executives and famously demonstrated through pie charts that Ford was lacking in the small car department. That appears to be changing quickly.
This spring's market share gains by U.S. automakers, including Ford and General Motors, will leave a lasting mark at the expense of Toyota. Ford is still trading at a very low $14-15 per share, well below where it could trade a year from now. On a discounted cash flow basis, shares will be worth just under $30 apiece in 2012. EPS for 2011 is forecast at 113% with a five-year projection of nearly 13%. Broad trends suggest that Ford is stealthily improving its position in the competitive landscape: a consolidation of brands, a gain in market share over the past year and the shedding of debt.
The big question mark at Ford is the luxury Lincoln brand. Most Ford dealers were combined Lincoln-Mercury outfits, but Mercury was axed by Ford in its effort to refocus on its flagship brand. We think the upside surprise will in fact be Lincoln as it goes head to head with Toyota's Lexus luxury brand. One-third of Lincoln dealers are likely to be cut, with significant investment needed at dealerships to upgrade the Lincoln brand image beyond the Lincoln Town Car. The last big hit out of Lincoln came with the launch of the Navigator in 1999. Sales have slumped steadily since that year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.