It May Be Time To Give Ford Some Respect

Oct.17.11 | About: Ford Motor (F)

If Ford's (NYSE:F) PE were just at the average for the market, the stock would be 30% higher than it is. And such a valuation looks possible now that the UAW is set to approve a new contract that won't break the bank, and the company starts to capitalize on its balance sheet advantages. Its debt-to-assets ratio, for instance, is falling steadily, and could hit 50% next year.

If nothing else expect a relief rally in the wake of the contract acceptance, which carries a total wage bill of $55/hour.

Ford was the only U.S. auto firm not to take the 2009 bailout. While the company wins headlines for its fuel-efficient hybrids, it's also got some big ol' pick-ups like the Ford Ranger, whose mileage is just in the mid-20s.

Here's why Ford may be under-priced even at 10X earnings.

  • The average car is 10 years old and breaking down.
  • Car mileages are improving. Ford's new PowerShift transmissions boost that figure by 10%, and the company now has gas-powered cars getting 40 mpg. Consumer Reports is starting to rate them as something other than lemons.
  • Ford is starting to export cars again. Its name plate is not as tarnished in China as it is, say, here.
  • Maybe CEO Alan Mulally is right, and the economy really is turning around.

The biggest problem bears can see is the health of Mulally, who turned 65 this year. Mulally came to Ford from Boeing (NYSE:BA), and his succession is certain to spark debate. But it will be in the hands of Bill Ford Jr., who hired Mulally and has devised succession plans for all the company's top officers.

Yes, there are risks in Ford. But no more risks now than with any other large company. But you've got a good balance sheet, respected management, market momentum, labor peace, and a market hungry for the products it's making.

Maybe it's time to give Ford some respect.

Disclosure: I am long F.