Ford Posts Another Impressive Month In March

| About: Ford Motor (F)
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Summary

Ford posted an 8% increase in U.S. auto sales during March 2016 compared to March 2015, which came in slightly below estimates.

After a slow month in January, the Mustang, F-Series, and other SUVs posted impressive February and March results--boosting sales numbers as well as average transaction prices.

Ford certainly faces challenges in 2016, but given the strength of the automotive industry and the weak valuation, I am optimistic on Ford's 2016.

Ford (NYSE: F) announced March 2016 U.S. vehicle sales of nearly 255K, up 8% from the same month in 2015. This nearly double digit increase came in slightly below the 9% estimates from Kelley Blue Book and Edmunds. The increase comes a month after Ford posted the leading increase of 20% among all of the automakers in February. Both of months have been refreshing to Ford's shareholders after a mediocre January. Furthermore, the company increased its average transaction price at a steady price of 2.6% to $36,444 due to the continued success of its larger vehicle offerings.

Even better for Ford, this wasn't necessarily an impressive month for the industry as the adjusted annual rate fell to 16.57 million vehicles, down from the 17.5 expectation after February. Competitors such as Nissan (OTCPK:NSANY) (up 13%), Honda (NYSE: HMC) (up 9.4%), Fiat Chrysler (NYSE: FCAU) (up 8%), and General Motors (NYSE: GM) (up 0.9%) posted solid increases while Toyota (NYSE: TM) (fell 2.7%) saw a decrease.

Furthermore, in the critical pickup truck market, Ford's F-Series posted a 9% increase and for the quarter, F-Series sales totaled 186K, which represents the best first quarter start in a decade without any signs of slowing. The model is coming off a busy 2015 where it underwent a drastic model change to an aluminum body starting with this year's model, and has seen tight inventory levels so far as the company has worked to configure its manufacturing plants. Because of the inventory constraints surrounding the new F-150 model, the company did not utilize heavy incentives to sell older models like its competitors in the first half of 2015. However, the company reached full production in the second half of 2015 and was credited for its late surge in 2015. Showing its resiliency, even with the supply issues, the model was awarded the title of America's best-selling pickup for 39 straight years and the best-selling vehicle for 34 straight years with over 780,000 trucks sold in 2015.

This slow start to 2016 in addition to other possible threats such as the overall health of the US economy, further interest rate hikes, and emergence of new competitors in the auto industry are weighing heavily on investor sentiment. If there was an event or condition that forced the US economy back into slowing growth territory or a global recession, it would definitely have a major impact on Ford. Furthermore, with an interest rate hike announced in December, it is expected that the automotive market is hitting a peak domestically.

Additionally, with new companies working to produce technology-infused vehicles such as Tesla (NASDAQ: TSLA), Google (NASDAQ: GOOG) (NASDAQ: GOOGL) and Apple (NASDAQ: AAPL), it is important that Ford stays ahead of this curve and doesn't fall behind when it comes to technology use in the vehicle. Ford appears to be prepared for this through rumored partnerships with Google and Amazon (NASDAQ: AMZN); however, management must continue to look to be leaders in the race to an autonomous car.

With the company trading near $13.00 per share with a PE ratio of approximately 7 (both figures as of the beginning of March 2016), it appears to be undervalued compared the current S&P 500 P/E ratio of 23. Furthermore, the company is trading below PE ratios for Toyota, 8.54, and Fiat Chrysler (31.44). Given this low comparative valuation and the company's dividend yield of almost 5%, I believe the stock is attractive at current prices. While the sluggish start and rumors of a domestic auto sales ceiling, it is certainly positive to see Ford post such great results in March. With this low valuation, I do not see anything in the near term that should weigh heavily on the company's stock and expect the recent rebound to continue.

Given this low valuation and the long-term optimism with Ford, I'm extremely encouraged by the US sales results. I am excited about the company's future. With consumers purchasing more expensive vehicles, it will allow Ford to report stronger top-line and bottom-line growth going forward in 2016. I remain bullish on the US automobile industry and expect the industry to post results similar to 2016. Furthermore, I believe Ford has a strong product mix to take advantage of the growing market and will pay investors an above 5% dividend yield to own the stock.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in F over 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.