Ford Motor Company's (F) current shareholders should remain confident about holding the stock long term. Interested investors should consider this company a buy, as headwinds in Europe are currently hampering Ford's stock price. Europe's economic crisis negativity impacted Ford the most amongst the major automakers. That said, Ford is available at a substantial discount to its peers, while it also has advantages in terms of its key metrics, auto production and niche markets around the world.
Ford Motor Company is still in the midst of its transitional phase headed towards leaner more innovative global production focused on the robust emerging markets. The company has its sights set on long-term organic growth. Ford also has amongst the highest potential for capital appreciation in the medium term, as the new Fusion models are launched throughout the next few years.
Toyota (TM), Honda (HMC) and General Motors (GM) are major automakers that are most comparable to Ford Motor Company. Ford is currently trading under $10 per share, substantially lower than all these automakers. Its price is around 2.3 times earnings, lower than GM's 8.8, Toyota's 17.3 and Honda's 14.4 price-to-earnings ratios. Only Honda's 0.24 price-to-sales ratio is lower than Ford's 0.29. Only Toyota's $4.64 EPS is higher than Ford's $4.42 EPS.
Ford's 3.17% sales deficit throughout the past five years is the lowest amongst these automakers. Ford's 158.4% ROE, 4.6% operating margin and 7.2% profit margin are the highest among these automakers as well. Ford's beta score of around two and average volume of 37.8 million are also substantially higher than its peers. Ford is the only stock trading at a deficit YTD through late September, while its stock has increased 9.1% since its last earning release.
Ford's recent earnings release showed that total revenue declined to $33.2 billion from $35.5 billion, YOY. Total expenses decreased to $31.7 billion from $33.3 billion, YOY. Second quarter operating income decreased to $1.32 billion from $1.87 billion, YOY. Net income decreased to $1.04 billion from $2.39 billion, YOY. Ford's gross cash increased by $800 million at the end of the first half, down from $1.5 billion, YOY. Net income decreased from lower operating results and higher tax expenses. The decrease in revenue was mainly due to lower sales in Europe, as well as South America and Asia Pacific.
The decrease in operating income was due to higher costs from launches in 2012, as well as investments in growth and commodity costs. Ford's total US market share was 15.6%, deceasing 170 basis points, YOY. This is due to increasing competition from automakers recovering from the 2011 tsunami, as well as discontinued models like the Ranger and Crown Victoria. Ford's outlook for North American sales in 2012 remains unchanged. Ford expects earnings in Asia Pacific to improve from additional capacity in China and Thailand, as well as the new Focus and new Ranger launches.
The wide-scale crisis in Europe decreased August 2012 sales by 8.5%, the 11th consecutive annual decline in the region. Sales decline by 11% in France, 4.7% in Germany and 20% in Italy. Sales in Spain increased 3.4%; sales for Volkswagen (VLKAY.PK) increased 1.6%. Fiat and GM's Opel division saw sales decline by 18%, Ford sales declined by 29%. In order to adapt to market demands, dealers have been selling themselves new autos in order to offer them as used vehicles for a discount to consumers. This method of self-registrations accounted for 30% of industry registrations for the first eight months of 2012.
Ford registrations fell 8.5%, YOY and its market share eroded from 7.7% to 6%, YOY. Ford projects a full-year loss in Europe of $1 billion, double its initial projection. Ford expects a carryover from rough sales in 2012 and a recovery in Europe for 2014. Ford already announced it will cut hundreds of jobs across Europe, while it also needs to decrease factory capacity by 20% from its current level of 63%. Automakers have capacity to produce 18 million vehicles in Europe; the current sales rate is running under 14 million for the year. Morgan Stanley (MS) projects a $1.5 to $2 billion loss for Ford in Europe. The automaker is balancing Mulally's impending retirement, while preparing to launch 15 new models in Europe over the next five years.
Ford recently unveiled the 2013 F-150 King Ranch at the Texas Auto Show. Texas is the largest truck market in the US; this addition accompanied with MyFord Touch and EcoBoost builds on a 12-year partnership between King Ranch and Ford. The F-150 recently passed 200,000 units sold since February 2011. Ford's F-150 has 62% market share in occupations in road and highway maintenance, 68% market share in hazardous materials work, and 67% market share in the oil pipeline industry.
Ford is currently working with Weyerhaeuser (WY) to develop more sustainable plastic composite materials for future production; this cellulose material can be applied to parts in the interior, exterior and under the hood as well. This method can improve speed processing time up to 40% and reduce weight by 10%. This also saves 5 million pounds of petroleum annually and reduces carbon dioxide emissions, as well. Weyerhaeuser holds 20 million acres of forestland around the world and it plants more trees than it harvests; this is a very sustainable and promising method of production for Ford.
Ford also recently produced its 350th million vehicle in Thailand at the end of August 2012. The Ford Focus was also the best-selling car throughout the first half of 2012: over 489,600 units sold, versus over 462,100 Toyota Corollas. Ford is moving towards its One Ford and One Manufacturing plan for leaner production; over 85% of the vehicles will be based off nine core platforms by 2014.
Since 2006, Ford has invested $6.7 billion into the Asia Pacific region; Ford expects 60% of the industry's growth from this region by 2020. Ford is planning six plants in China, two in India and one in Thailand that will produce a total of 2.9 million vehicles within the next four years. Ford projects 15 new vehicles in China by 2015; around 95% of the region's vehicles on global platforms and twice the number of dealerships within four years. Ford faces headwinds in the near term, but its long-term prospects are very promising.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.