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Suman Chatterjee
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Financial analyst-writer for the last 3 years. Writes for a number of financial publications including The Street, Motley Fool and Seeking Alpha. Completed his Bachelors in Business Administration (Finance) with GPA 3.0, currently pursuing Chartered Accountancy from ICAI, India. Specializes in... More
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  • Can You Give Some More Time To Ford? 0 comments
    Dec 19, 2012 9:06 AM | about stocks: GM, HMC, TM, TSLA, VLKAY, F

    Is the amount $445 million really that big a loss for a company with market cap of $44.27 billion? Well, it might be if the same company saw $2.2 billion revenue loss in the second quarter this year and $1 billion in the third quarter this year, on YoY basis. Yes, that's pretty much the case with Ford Motor Company (NYSE:F).

    Today, Ford was denied $445 million in interest on overpaid corporate income taxes, from 1983 to 1989 and in 1992 and 1994, to the US government. The first lawsuit was filed in 2010, when it was rejected by a federal judge in Detroit. Ford appealed again in the US Court of Appeals in Cincinnati on the basis of IRS revenue procedure. And this was the final judgment:

    "We are unwilling to place so much weight upon an interpretive aid that binds neither IRS nor this court," U.S. Circuit Judge Julia Smith Gibbons wrote. The procedure cited "does not even enjoy the status of an agency regulation," she said.

    Ford has not yet replied anything to that, but it probably means that it might not be able to take any further actions. Needless to say, you can record the amount as "bad debt write-offs" on the US government!

    How big is that loss for Ford? Let's look at the bigger picture. How is Ford performing on the financial front? Here's a quick financial summary of the Q3FY12 results:

    (click to enlarge)

    Not to mention the declining revenue amount, the EPS of $0.41 is still meager (yet acceptable) at best, up from the $0.26 in Q2FY2012. But one thing to note, things don't look promising from the above chart. Strangely, Ford still continues to boast "strong performance" in each of its financial statements. Is there any specific reason for that?

    Let's give a look at the comparative stats:

    Company

    EPS

    Price-to-Book Ratio

    Total Debt-to-Equity

    Return On Average Assets (ROAA)

    Operating margin

    Ford Motor

    4.42

    2.89

    662.02

    11.79

    5.60

    Toyota Motor (NYSE:TM)

    5.65

    1.08

    113.79

    0.56

    1.91

    Daimler(OTCPK:DDAIF)

    6.88

    1.11

    156.89

    4.25

    7.93

    General Motors (NYSE:GM)

    2.66

    1.40

    34.97

    4.30

    3.78

    Volkswagen (OTCQX:VLKAY)

    12.54

    1.30

    162.56

    6.98

    7.07

    Honda Motor (NYSE:HMC)

    2.20

    1.16

    93.98

    1.04

    2.91

    Nissan Motor (OTCPK:NSANY)

    1.92

    1.06

    121.56

    3.46

    5.55

    Tesla Motors (NASDAQ:TSLA)

    -3.69

    16.05

    125.04

    -46.28

    -123.13

    Source: Google Finance

    Looking at the above chart, the operating margin of 5.6%, EPS of $4.42 and ROAA of 11.79% is still one of the highest in the industry. So even when the numbers on the income statement are going down, they are still better than most in the industry. And regarding the slightly high price-to-book ratio, it's really not that big compared with the other metrics. Perhaps we should put more trust in Alan R. Mulally!

    Not to forget, popular analysts' estimate say that Ford's performance can be discouraging in the coming few quarters, but things will probably turn around by the end of 2013.

    Revenue Est.

    Current Qtr.

    Next Qtr.

    Current Year

    Next Year

    12-Dec

    13-Mar

    12-Dec

    13-Dec

    Avg. Estimate

    32.99B

    31.94B

    125.00B

    130.85B

    No. of Analysts

    13

    10

    18

    18

    Low Estimate

    30.95B

    30.52B

    123.05B

    124.61B

    High Estimate

    34.03B

    33.85B

    126.13B

    134.74B

    Year Ago Sales

    32.60B

    30.52B

    128.20B

    125.00B

    Sales Growth (year/est.)

    1.20%

    4.60%

    -2.50%

    4.70%

    Source: Yahoo Finance

    Conclusion

    In the last 3 months, Ford's stock price improved by 10%, but this is not going to stall here as of yet.

    It is likely that with the improvement of sales and operating performance of Ford as expected in 2013, the PE ratio might see some boost, which just means that price might rise over time. So if you decide to buy some stocks now, you might be able to rake in some capital gains later.

    Having said that, nobody can predict the future, can they?

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

    Additional disclosure: Equity investing is subject to market risks. Think twice before you act.

    Themes: long-ideas Stocks: GM, HMC, TM, TSLA, VLKAY, F
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