Can Ford Motor Company (F) Continue to Create Shareholder Value?

Attractive valuations

Ford Motor Company (NYSE:F) can very well be classified as an undervalued stock. Currently, the stock is trading at just 10.7 times 2012 earnings. Further, given the expected growth, Ford is trading at 9 times 2014 and 8 times 2015 earnings. Analyst estimates shows growth of 20% and 19.2% for 2014 and 2015, respectively. The forecast PEG of the stock is therefore 0.53 for 2014 and 0.55 for 2015. A low PEG shows that the stock is undervalued considering the growth potential. Ford’s dividend history is also impressive and the stock offers a dividend yield of 2.7%.

Peer comparison

PACCAR Inc (NASDAQ:PCAR) is currently trading at 18.8 times 2012 earnings. However, an estimated growth of around 15% could be hampered with the increase in the number of truck cancellations in North America. This can negatively impact growth in fiscal 2014 resulting in the lowering of earnings estimates. Valuation will therefore adjust accordingly on the downside. The forecast PEG for PACCAR Inc (NASDAQ:PCAR) is 1.25, which is also high compared to Ford.

Tesla Motors Inc (NASDAQ:TSLA), which can be considered as another competitor, is running in losses for the last five years. The company’s earnings estimates are robust for the coming years. However, it still remains to be seen if earnings can translate into sustained profits and positive operating cash flows.

In addition to the poor financial performance, Tesla Motors Inc (NASDAQ:TSLA) has added one more rotten egg to its basket with the recall of 1,228 units of 2013 Model S cars due to defect in mounting brackets for the rear seat. Another threat for the company is a bill introduced in New York to prevent car manufacturers from selling to the customers directly. If this bill is passed, then the operating model on which Tesla Motors Inc (NASDAQ:TSLA) works would make purchasing impossible in third-most-populous state.

Conclusion

Though Ford Motor Company (NYSE:F)’s revenue and earnings growth might not have been robust, attractive valuations, a good dividend history and high growth prospects qualify the company as a good buy. A 48% increase in the number of patents justifies the innovation capabilities of the company and its strong position in this industry. Ford can be considered with a long-term investment horizon, considering the positive investment triggers and the current undervaluation.

The article Can Ford Continue to Create Shareholder Value? originally appeared on Fool.com and is written by Anjum Khan.

Anjum Khan has no position in any stocks mentioned. The Motley Fool recommends Ford, General Motors, Paccar, and Tesla Motors. The Motley Fool owns shares of Ford, Paccar, and Tesla Motors. Anjum is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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