Ford (NYSE:F) has had a lot going for it of late. A fabulous third-quarter earnings report, terrific October numbers, and surging sales in emerging markets such as China have grabbed headlines. However, the stock recently took a beating after the company gave out a shy profit outlook. In the year end update, Ford's CFO, Bob Shank, warned of lower than expected margins in 2014 as they plan to introduce 23 new car models in 2014. As a result, the blue oval had to revise its profit outlook downwards. Plus, the rumors of Alan Mulally, Ford's CEO, resigning have further degraded the stock price.
However, I think investors shouldn't lose hope just yet as there are plenty of reasons to believe that Ford will return a very good value in the long run. Let's take a look at those reasons.
Using Technology To Its Advantage
Ford is using technology to its advantage to push sales higher. As a part of its "green technology" vision, Ford has been investing in "Big Data analytics" for over 15 years for driving business decisions on matters ranging from realistic fuel economy targets and green routing services to the potential availability of rare earth minerals used for powertrains and batteries.
"The company's investments in the field of Big Data analytics have continually increased during the last 15 years," John Viera, the global director for sustainability and vehicle environmental matters at Ford, told attendees of the recent Net Impact conference in San Jose, California. Ford installs over 74 sensors in cars, including sonar, cameras, radar, accelerometers, temperature sensors, and rain sensors. As a result, vehicles like Ford Fusion Energi generate about 25GB of data per hour, although this could go up to 250GB for vehicles that they are experimenting with. All this information currently exists in isolation.
By implementing Big Data analytics on a global scale, this huge amount of data, with the permission of vehicle owners, will be transferred into cloud data centers where it can be analyzed and used to make vehicles better, according to Ford executives. Ford's entire Big Data analytics initiative has yielded innovations like EcoBoost engines, and hybrid and plug-in hybrid technologies. The EcoBoost engine is already a success and it won the "International Engine of the Year" award for 2012 and 2013. Ford produced the 2 millionth EcoBoost engine in September this year.
This essentially means that Ford is making the right moves as far as innovation is concerned. The development of the EcoBoost engine is an important landmark as it has helped the company make more efficient vehicles. Given such moves that Ford has been able to make on the back of its analytics, it won't be a big surprise if we see the company churn out more such ground-breaking innovations in the future. Driven by the EcoBoost engine and the EcoSport model, Ford has been able to make good headway in the Asian markets such as India and China.
Ford sold an all-time high 14,935 vehicles in the month of October in India, signifying a year-over-year increase of 36%. The company also shattered records in China by selling 99,157 vehicles in November, up 47% from last year while year-to-date sales jumped 51% to reach 840,975 vehicles. Given that India and China have a combined population of over 2.5 billion and have a growing middle class, Ford will be launching numerous new cars in 2014 to gain market share. The success has been so incredible that the blue oval expects to sell one million cars in Asia in 2013.
Growing Presence In Other Markets
Inspired by its success in Asia, the company has now turned its attention to the Middle East and African markets. Ford expects these markets to be one of the biggest growth drivers, thus the company has assigned high priority to them. Ford and its Lincoln luxury brand announced that it will be launching 17 new or upgraded vehicles in the Middle East and Africa over the next two years. Ford didn't reveal its complete portfolio, but the company did confirm that it will be offering the highly successful Ford Fusion and EcoSport to its customers.
Ford's sales in this market have already grown by 60% in the last four years, and the company expects an additional increase of 40% before the end of 2020. Presently, Ford sells about 200,000 vehicles annually throughout the Middle Eastern and African segment, commanding a tiny market of 5%. Out of this, the Middle East accounts for 30% of its sales while North Africa and sub-Saharan Africa accounts for 13% and 10% of sales, respectively.
Analysts are expecting Ford's earnings to grow at a CAGR of 11% and the way Ford has been fortifying its business around the world, it won't be surprising if Ford surpasses these estimates. At a P/E ratio of 11 and a dividend yield of 2.40%, Ford is pretty cheap and it is constantly looking to make itself better. In addition, the earnings growth expectation for the next five years is almost 15% per year, but it won't be surprising if analysts revise their targets upwards as the company penetrates more into emerging markets. Thus, Ford is making good use of Big Data and the company might also be able to increase its earnings as a result in the future.
Don't Worry About Mulally
The situation regarding Mulally is ambiguous. Even though Ford's board has confirmed the he will not resign in 2014, investors are still worried. The board didn't mention anything about 2015, so Mulally may resign and finding a new CEO can be a very tricky task. However, I don't think investors should take this factor into consideration. While I'd be very happy if Mulally stays for as long as possible as he's done such a phenomenal job turning the company around, I don't think Ford will tumble down without him. It may not be official, but it's quite possible that Mark Fields, Ford's existing COO, will take over the throne from Mulally. Fields has been with Ford through the toughest of times and he will be the ideal CEO candidate. This means that Ford will not be obliged to shell out millions of dollars in its hunt for a new CEO.
Ford has been seeing good sales growth across the world and has been launching new products to bolster its position further. The company's product pipeline looks strong and investors can look forward to considerable top and bottom line growth in the coming years. Therefore, I think the recent price slump is the ideal entry point for opportunistic investors.
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.