Ford Is On A Roll, With The Stock Follow?
Monday, April 04, 2022 5:00 PM

In March, Ford (NYSE: F) outsold long-time rival General Motors for just the second time in the last 10 years. The milestone was a combination of the new, recently out-of-bankruptcy, fewer brands, trimmed down General Motors and a generally hot selling line-up from Ford. Will Ford stock investors see a renewed surge in the share price?

While the other two major U.S. auto manufacturers, GM and Chrysler, were forced to rely on a federal government bailout to save their businesses, Ford managed to put turn profitable without outside financial help and put together an attractive lineup of cars and trucks. After several negative income years, Ford was profitable in 2009, almost doubled net income in 2010 and on track to hit a similar level of profits in 2011. The profitability of the current year seems to be the point confusing investors and the stock market.

Out of the recent bear market, Ford gave investors a tremendous ride. From under $2.00 per share at the bottom of the market, Ford shares increased 10 fold to a recent peak of just under $19 in January. Since that peak, Ford has pulled back to as low as $14 and now trades around $15.50. Fourth quarter 2010 results released on January 28 came in well below expectations and were probably the catalyst for the recent share price decline.

One problem investors have with Ford is the uncertainty. For a $100 billion annual sales company, the herd of Wall Street analysts following Ford have diverging opinions on the 2011 profits for the company. The first quarter 2011 results will be released about the end of April, and the estimate range from $0.28 all the way up to $0.60 per share. Full year estimates have a low of $1.15 and top out at $2.40 per share. Over the weekend Credit Suisse upgraded the stock and boosted their estimate for the quarter to $0.55 per share.

The auto industry is very cyclical and a slow or bad economy can hammer auto sales and send automaker profits to losses. The P/E of these stocks will stay low when times are good as the market anticipates the next round of negative earnings. At this point, Ford is affected by several positive factors that could lead to better-than-expected results and possible P/E expansion for the remainder of 2011:

  • Fuel Efficient Lineup: As gas prices continue to rise, Ford offers auto models which provide excellent fuel economy and a new V-6 engine for pickups for better economy. In March, a third of F-150 sales had V-6 power.
  • Lower levels of debt: Ford reduced debt on the automotive side by $14.5 billion in 2010, a 43 percent reduction. Annual interest expense will be reduced by $1 billion, allowing more money to flow to the bottom line.
  • Japanese problems: The recent earthquake and tsunami in Japan could reduce the availability of cars from Japanese manufacturers. The result could be extra interest in Ford's fuel efficient models.

There will probably not be a multiple increase in Ford share price in the upcoming years, but a few quarters of better than expected results could push the stock above $20. Factors are in place which could provide those positive surprises.