Ford Paves Road To $40, Seat Belts Are Optional

| About: Ford Motor (F)
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"Fasten your seat belts, it's going to be a bumpy ride."

- Bette Davis

Shares of Ford (NYSE:F) closed up 2.54% on Wednesday to $17.37 following what I can only describe as a breathtaking second-quarter earnings report. As much as I like Bette Davis' famous commute warning, Ford's CEO Alan Mulally has other ideas. And it doesn't seem as if he has any intention of driving investors through treacherous roads. Those days are over.

Now, if you've been riding this company with us and doing exactly as we've said, we're certain that you've made quite a bit of money this year on Ford. I'm not suggesting that we have any special insight on this company. But what we do know is that aside from growing global market share, Ford has also become a cash-generating vehicle - pardon the pun.

In only seven months, the company has already surpassed its cash total for all of 2012. This is while management recently predicted that cash-flow for 2013 will be significantly higher than last year's mark, which registered at $3.2 billion. Now, companies don't go out of their way just to boast about lofty goals. CEOs are not known to put undue pressure on themselves without knowing (with certainty) that their companies won't disappoint the Street.

So, with that level of confidence from management, it's not hard to feel good about the stock. We're not entering this blindly. But we've also found a few nuggets that the Street has missed. Accordingly, we've taken a backseat to no one in our recent predictions - suggesting that the stock was heading to $40 per share. On Wednesday, the company delivered more than it was expected to produce. Let's go over the numbers to see if any adjustments need to be made.

In out last article, we said the following:

"The Street will be looking for earnings-per-share (EPS) of 37 cents on revenue of $35.2 billion, which would represent year-over-year growth of 23% and 12%, respectively. My EPS target is slightly above consensus estimates. I'm looking for at least 40 cents to 43 cents per share, which would bring Ford's year-to-date EPS total to at least 84 cents, when factoring the 41 cents earned in the first quarter."

It seems, though, that I was not bullish enough as the company dominated all metrics across the board. Earnings arrived at $1.2 billion, or 30 cents per share on revenue of $38.1 billion, which represented 15% year-over-year revenue growth. The key component here was that when excluding one-time items, the company actually earned 45 cents per share, which is enough to top consensus estimates.

If you recall, in our article on Monday, we outlined the importance of the earnings per share growth and how that factors in our $40 price target. Given that Ford's earnings arrived 2 cents higher than our target of 43 cents, this means that the company has now earned a total of 86 cents in its first two earnings reports. What this means is that the company only has to earn 85 cents per share in the next two quarters to achieve full-year earnings of $1.71 per share.

As we've said recently, with the strong growth that the company is seeing in areas like China, $1.71 shouldn't be that difficult. But it's not just about China. Ford was also a road warrior in North America, which helped offset weakness in Europe. But given the fiscal challenges that Europe is still working to resolve, this wasn't much of a surprise.

This is yet another "road hazard" that the company has avoided. And I don't anticipate that there will be any slowdowns of any kind. That said, the improved U.S. economy has had a lot to do with Ford's impressive growth. I won't argue that. For that matter, I won't discount that General Motors (NYSE:GM) has also benefited immensely from a strong economic recovery.

Even so, Ford's management appears to be in a sort of zone that investors haven't seen in a long time from this company. And assuming that the $1.71 full-year EPS is reached, investors should expect an increase in the dividend by the first quarter of 2014. As I've said before, the best is yet to come from this company. And although I won't do this in my own car, I'm reclined in the passenger seat with no seat belt. Ford's in cruise control.

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.