Ford: Beating On The Bears

| About: Ford Motor (F)
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Summary

Ford Motor released very strong Q1-16 financials yesterday.

Record pre-tax profits and strong cash flows still support an investment in this auto company.

Ford Motor's business is on track to record 2016 results.

Don't be a seller just yet.

Auto maker Ford Motor (NYSE:F) released Q1-16 results on Thursday, and the company could not have done much better. When General Motors (NYSE:GM) reported first quarter earnings last week, the company blew past analyst expectations, with sales being significantly stronger than expected, and the car company more than doubled its profit Y/Y. When I covered General Motors' Q1-16 results, "General Motors Scores Big Win", I contended that GM's earnings release bode well for Ford Motor's earnings, too.

And that couldn't have been more true. Just like General Motors, Ford Motor saw its sales rise by a good clip Y/Y thanks to strong SUV and pick-up demand in the first quarter, a development investors are all too familiar with from 2015.

Ford Motor said it had revenues of $37.7 billion, up $3.8 billion from the first quarter a year ago. Importantly, Ford Motor beat the consensus earnings estimate by a wide margin, demonstrating that Wall Street is not as bullish about auto makers as it could be. At the end of the day Ford Motor said it pulled in ~$2.5 billion in profits in the last quarter, an improvement of ~$1.3 billion Y/Y. On a per-share basis, Ford earned $0.61, more than doubling last year's profit of $0.29/share. Ford's operating earnings were said to be $0.68/share, crushing expectations that the company would earn a profit of $0.48/share.

Not only did Ford Motor beat earnings estimates by a wide margin, but the company is off to a very solid start to the year in a lot of other respects, too. For instance, Ford Motor said that its auto operating cash flow hit a first quarter record of ~$2.7 billion, and that its pre-tax profit also hit a record of ~$3.8 billion. These numbers speak a clear language: Ford Motor is on a roll right now, and there are no warning signals flashing yet.

Investors have been speculating about a cyclical fall off in auto sales for years, which is why Ford Motor's shares have been a languishing. As a result, investors have sold Ford Motor's shares because they expected an earnings recession...a recession that so far hasn't materialized. In fact, it is likely true that investors that sold Ford Motor because of concerns over the maturity of the auto sales cycle have been way too early. Ford Motor's business does not show any weakness at this point, and the big earnings beat only proves that the auto maker is wildly underestimated by the Street.

Your Takeaway

The takeaway from Ford Motor's earnings release is the same as it was in the case of General Motors: Both companies are off to a very encouraging start in 2016, a year that will likely continue to see record profits, margins, and cash flow on the back of strong SUV and pick-up demand. As far as I am concerned, Ford Motor's share price does not realistically reflect the value of its business operations. Further, if Ford rakes in billions more in profits this year, the company might even decide to pay another special dividend next year. Buy for income.

Disclosure: I am/we are long F.

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.