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Back in 2008, many people thought Ford (NYSE:F) would go bankrupt. The company was going through a very difficult time along with a major restructuring. It was mainly thought that Ford was very likely to be taken over by the government like GM (NYSE:GM) to be saved from an imminent bankruptcy. The company was burning through its cash reserves, the debt was piling up, and the revenues were falling off the cliff. Back then, Ford's share price was a little over $8. Then in the next year and half, Ford's share price fell all the way down to $1.40 per share and bottomed out in the early part of 2009.

Once investors realized that Ford wasn't going out of business and the worries about the company's very survival were put to rest, the company's share price started to rally. The last day Ford's shares traded for less than $9 was on December 8, 2009. Back then, Ford had a total debt of $145 billion and revenue of $115 billion. Again, back then, the company's credit was rated as "junk."

Fast-forward 3 years, and Ford is in a much better financial shape today. The company's annual revenue is expected to near $150 billion and its debt is below $100 billion. The company's credit score has improved significantly and it's getting healthier every day. Today, no one questions the survivability of Ford. Yet, the company's current share price is as low as it was back in 2009 when company was fighting for its very survival. What's the issue?

For Ford, business is doing really well in North America. Things aren't so well in Europe, Asia or South America. Most of the issues surrounding Ford are temporary and tied to global economy rather than the company itself. The developing nations are buying cars at a rate they never did before, and developed nations are replacing their old cars with newer, better and more fuel efficient ones.

In the last few weeks, many analysts reduced their annual earnings estimates for Ford after the company warned investors regarding the slowing business outside of North America. Even then, the analysts expect the company to post strong results. This year, the company is expected to earn between 98 cents and $1.50 with average estimates being $1.33. In 2013, the company is expected to earn between 97 cents and $1.85 with the average estimate being $1.59. For 2014, the average estimate is $1.84 with estimates ranging from $1.58 and $2.03 per share. If we assign the company an average P/E ratio of 10, the company is looking at a price target of $13.3 by the end of this year, $15.9 by the end of next year and $18.4 by 2014. That's more than double the share price of Ford today.

For the next several years, Ford will continue to save up cash and shrink down the debt. Most of Ford's debt belongs to Ford Financial and this department will always carry a certain amount of debt by design. Once Ford's debt becomes more manageable, the company will be able to return value to its patient investors that have been loyal to the company in good days and the bad.

On July 25th, Ford is expected to post quarterly earnings between 23 cents and 34 cents. In the last few weeks, all 10 analysts covering the stock revised their expectations down regarding the company, so the slowness outside of North America is already baked in these predictions. The consensus quarterly earnings prediction for Ford is 28 cents.

In the earnings report, I will be watching for a few things. I will be definitely curious about how Ford's debt reduction is going, whether the company wants to increase its dividends or start a share buyback program, how the company wants to compensate for the slowing economy in Europe and Asia and of course, the company's guidance for the full year. In the medium term (i.e., 1 to 3 years), the biggest threat in front of Ford is employee contracts. Because of Ford's cheap valuation, I am bullish on Ford in the long term with a 12-month price target of $12-13.

Disclosure: I am long F, GM.

Source: Ahead Of Its Earnings Report, Ford Is Cheapest Since 2009