Ford Motor: Are Investors Too Greedy?

| About: Ford Motor (F)


Ford Motor has underperformed the S&P 500 YTD.

Ford Motor released March U.S. sales figures last week, which were solid, but still missed the consensus estimate.

Investors seem to be hard to please when it comes to acknowledging Ford's sales successes.

An investment in Ford Motor yields 4.58%.

Yep, it is that time of the month again when automakers release their monthly sales figures for the U.S. market. Investors look forward to these sales figures largely because they want to get a feeling about how sales are likely going to trend for the remainder of the year. So far, automakers have been doing really well in 2016, at least in operating terms. The stock market, on the other hand, is a whole different ball game.

Ford Motor's (NYSE:F) February U.S. sales, for instance, were up a whopping 20.4% Y/Y, outperforming the analyst consensus estimate by a wide margin, and driving home the point that the automaker should not yet be written off. In my piece covering Ford's exceptionally strong February sales, titled "Don't Count Ford Motor Out Just Yet", I contended that it was too early to speculate on a cyclical decline in sales, and that Ford Motor had more gas in the tank.

Unfortunately for shareholders, the market does not see it quite that way. Ford is still down ~7 percent for the year, even though the S&P 500 has recaptured all 2016 losses and clawed its way back to a small 1.41 percent gain for the year.

Strong March Sales, But Not Good Enough For Investors

By any reasonable standard, Ford's March U.S. sales were more than robust. Ford Motor sold 254,711 vehicles last month, or about 8 percent more vehicles than in March 2015 when the company said it sold 235,929 cars and trucks. Year-to-date, Ford Motor has sold 645,626 vehicles, an improvement of 8.6 percent over the first quarter of 2016.

Ford said in its sales release that its March and first quarter sales were the best in a decade. Further, Ford's brand SUV sales had their "best first quarter sales start in company history", and that had a positive effect on transaction prices, too.

Customers continue buying high-end SUVs and trucks, helping the Ford brand increase its average transaction prices by more than $1,600 per vehicle in March - nearly double the industry average. We have been seeing solid sales momentum in the first quarter across our entire portfolio, with car, SUV and truck sales up across the board.

~ Mark LaNeve, Ford vice president

While March sales came in strong, Mr. Market discounted Ford's successes because the automaker still missed the consensus estimate of 9.4 percent growth. One could argue about whether a 8 percent Y/Y increase in sales is really that bad, but the stock market does follow its own rules, and at the end of the day Mr. Market decides which way we go. Ford slumped ~3 percent on Friday when investors digested the sales miss.

Ford's 8 percent Y/Y sales growth and rising average transaction prices demonstrate that concerns over a cyclical 'fall-off' in sales are misplaced. Ford Motor clearly benefits from robust demand, and it is still too early to bet against the automaker at this point.

Your Takeaway

Investors are hard to please when it comes to Ford, and they may be a little too greedy, too. Ford might have missed estimates, but the company is hardly in a weak position, and investors have very little reason to complain. Ford grew vehicle sales by 8 percent Y/Y, which follows a month of 20 percent sales growth. Though I am leaving my price target for Ford unchanged at $14, the automaker continues to be a compelling income vehicle with a 4.6 percent dividend. Buy for income and (limited) potential for capital appreciation.

Disclosure: I am/we are long F.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.