I recently analyzed Ford Motor Company's (F) long-term prospects, and concluded that the current $10 levels are a fantastic entry point for long-term value investors. After this week's early volatility in Ford's equity shares, in which investors saw the price of one share of F make a promising run up to $10.40 before a spate of selling (presumably to realize short-term gains), many are still unsure of whether the stock will ever return to the $13 levels of last year. So let's take a closer look at some of the company's financial metrics and multiples.
Ford has 164,000 employees in both the automotive and financial services sectors. Revenue per employee stood at $830,878 as of the most recent 10-K. Foreign sales last year were just over $54.1 billion, while domestic sales slightly surpassed $82 billion - signaling a healthy, balance and diversified market that reaches the majority of the world's population.
SG&A as a % of revenue is 8.7%, contributing to Ford's strong gross profit margin of 19.5% and EBITDA margin of 10.8%. Pre-tax profit margin for the firm is 5.9%. With relatively low turnover of assets (0.8%), ROA of 10.5%/ROE of 114.8%/ROIC of 18.9%, and decreasing leverage ratios, Ford represents an investment opportunity with an almost universally recognizable brand name that creates very tangible products for which demand is rapidly growing in developing countries.
Long-term debt stands at 84% of total capital. Taking a look at per-share values, Ford has $22.37 of working capital per share; $3.99 cash per share; book value per share stands at $4.35 (with tangible book value per share at $4.33); cash flow per share is a solid $6.11; and free cash flow per share is at $1.08. Considering the current market price of Ford equity shares near $10, these are fantastic figures that necessarily signal a market bottom at the current price level.
The company, notwithstanding some horrific earnings announcement in this fiscal year, has nowhere to go but up. With a dividend yield of 2%, phenomenal leadership in CEO Alan Mulally, expected growth in profits in U.S. and Chinese ventures, revolutionary new marketing roll-outs, and rising multi-year vehicle demand among both U.S. and global consumers, Ford's fundamentals are the icing on the cake.
After examining all of this data, I am even more convinced of Ford's long-term viability as an established auto manufacturer. Analyst estimates a range from $14 to $34 per share after various valuation methodologies - including intrinsic valuation using discounted cash flows to arrive at an implied price per share - are applied. I wouldn't be surprised to see Ford break out of the pack soon after the current European economic situation is resolved favorably, the U.S. economy improves, and the market returns to early-2012 levels.
In other words, if you're bullish on the overall global economy, you should be even more bullish on Ford's prospects in that environment. With competitors such as Toyota (TM) and Honda (HMC) plagued with setbacks in North America, and Ford management demonstrating a thorough understanding of the current market demand environment and best practices, I'm in Ford for the long haul. Whether equities, options, or both are your game, the edict on Ford is clear: Carpe diem. Buy now.