I grew up in a "car town" in central Indiana. This small city is currently home to several Chrysler transmission manufacturing plants and a large complex belonging to Delphi Automotive PLC (DLPH), formerly Delco Electronics. My home town has a history of automotive manufacturing dating back to 1896 with the opening of the Haynes-Apperson Company some seven years before the first Ford rolled off the assembly line. I saw, first hand, the cyclical nature of the automobile business and its positive and negative effects on the community's economy. I also witnessed the results of union greed and corporate stupidity, both of which were in abundance as I was growing up.
Not much has changed. Unions continue to demand wages and benefits that reduce the competitiveness and viability of the very hand that feeds them. Corporate executives continue to pursue products that consumers neither need nor want. Does the Edsel and the Chevy Volt ring a bell? Today, I want to analyze Ford (F), the only domestic automaker that weathered the financial crisis unaided by the federal government. I'll make some comparisons to its domestic rival, General Motors (GM) and a couple of its Japanese competitors- Honda (HMC) and Toyota (TM).
We'll begin with a review of Ford's fundamentals. The stock is trading at about $11 per share and Ford has a market capitalization of around $40 billion. Trailing twelve month price to earnings stands at 2.25 and the price to earnings growth ratio is estimated at 0.81. Ford's price to book is 2.43 and return on equity is an astounding 199.47%.
Quarterly year-over-year revenue and earnings growth are unimpressive, coming in at negative 2% and negative 45.3% respectively, prompting a review of the income statements - which show year-over-year revenue growth on an upward path. It is important to note, however, that 2011 net income was significantly boosted by Ford's sale of Associates First Capital Corporation, a finance company, and the addition of a non-cash gain from a previous tax credit. Ford's debt to equity ratio is a crushing 603.54 and the current ratio is 1.65. The stock pays a meager dividend yielding 0.9% against a payout ratio of 1%.
General Motors trades at about $22 per share with a market capitalization of around $35 billion. At first blush, GM looks like an attractive investment with a twelve month trailing price to earnings ratio of 6.75, a price to earnings growth ratio of 0.49 and a price to book of 1.20. Return on equity is 18.24%. Quarterly year-over-year revenue growth is reported at 4.3%, while quarterly year-over-year earnings are in the tank at negative 60.90. That said, full year revenues increased.15.13% from 2010 to 2011 and net earnings increased 48.9% in the same period. GM has a debt to equity ratio of 35.44 and a current ratio of 1.22, very good numbers, to be sure.
Honda, with market capitalization of about $58 billion is trading at around $32 per share. It has a higher price to earnings ratio than Ford or GM reporting in at 21.67. Honda's price to earnings growth ratio of 0.57 and its price to book of 1.05 looks good compared to Ford and GM. Honda's return on equity, however, falls well short of its American rivals coming in at 4.88%. Quarterly year-over-year revenue and earnings growth stand at 8.70% and 60.7%, respectively. These results blow Ford and GM away. Honda has a debt to equity ratio of 90.79 and a current ratio of 1.32. High debt to equity ratios are not uncommon in the automotive industry.
Toyota, with a market cap of about $122 billion, is almost as large as Ford, GM and Honda combined. It trades at around $77 per share - which would buy one share of stock in each of the aforementioned and leave enough in your wallet to buy a value meal at McDonald's. Toyota's price to earnings ratio of 33.92, however, does not make this stock a value, but perhaps its price to earnings growth ratio of 1.04 and fractional price to book of 0.92 does. I'm not particularly impressed with Toyota's return on equity of 3.35%, but I am dazzled by the quarterly year-over-year revenue and earnings growth - which is reported at 22.8% and 376.5%, respectively. Small wonder investors are paying a high multiple for this equity. Toyota's debt to equity and current ratios are reported at 108.49 and 1.05 in that order.
In my opinion, Toyota is the strongest foreign automaker and arguably the best investment of the four automakers we have discussed here. On the domestic front, I like Ford. I'm not comfortable with an investment in GM. The government still owns 500 million shares. Any sale of these shares, no matter how carefully orchestrated, will depress GM's share price. As a result, current GM shareholders may suffer a loss and taxpayers are all but certain to take a loss. GM's stock would have to rise to $51 per share for the taxpayers to breakeven. Analysts have a high target on GM stock of $45, per Yahoo! Finance.
Ford, on the other hand, has survived independently. It has sold off billions in assets to accomplish this, but has emerged as a leaner company with a solid business model. I also have greater confidence in Ford's leadership, notably in Alan Mulally. His experience with Boeing brings more to the table for Ford than Daniel Akerson's telecommunications background brings to GM.