At some point the market will catch up to the story Ford Motor Company (NYSE:F) is telling, and long-term investors ought to be rewarded. For those looking to invest, now marks a good opportunity. Soon enough shares will break through their current resistance and shift into gear.
Growing domestic sales faster
In April, Ford Motor Company (NYSE:F) saw domestic sales increase 18% for the month compared to 2012. That’s better than the 17% analysts expected, and much better than its Detroit counterparts General Motors Company (NYSE:GM) and Chrysler, which posted 11% sales gains. Toyota Motor Corporation (ADR) (NYSE:TM) saw sales fall 1.1% during the month.
As a result, Ford Motor Company (NYSE:F)’s U.S. market share has climbed to 16.3% in 2013, compared to 15.5% last year. And while U.S. truck makers are all gaining share as the housing market recovers, Ford has outperformed General Motors Company (NYSE:GM)’s and Chrysler’s gains combined.
Meanwhile, Toyota Motor Corporation (ADR) (NYSE:TM) has actually seen a very slight contraction of 0.1% in its U.S. market share. Investors aren’t deterred, however, as the company is able to capitalize on the weakened Yen to improve its margins on U.S. sales. With the Yen continuing to weaken, Toyota Motor Corporation (ADR) (NYSE:TM) has the option of becoming more aggressive with its pricing, which could put some pressure on the big 3 in Detroit.
Chinese sales ain’t bad either
Ford Motor Company (NYSE:F) is aggressively expanding in China. It’s quickly expanding its operations throughout the country, recently opening assembly plants in Hangzhou and Chongqing. It has further expansion plans, which include investing $6 billion annually in the region and hiring 1200 new employees by 2015.
The company’s Focus model has been very popular in 2013 with registrations increasing 51% in the country during the first quarter. It recently released the Kuga SUV, which sold 10,000 units in its first two months, and plans on releasing 15 new models by 2015.
As a result of all its efforts in the region, Ford Motor Company (NYSE:F) sales improved a whopping 54% in the first quarter, and 65% last month.
General Motors Company (NYSE:GM), for its part, has done well in the region as well. Last month, sales improved 12.6%, and the company recorded its second highest monthly sales total ever in the country. Despite Ford Motor Company (NYSE:F)’s dramatic sales growth this year, General Motors Company (NYSE:GM) still outsells Ford by a 5-to-1 margin in China.
Japanese automakers continue to suffer in China due to the backlash from last year’s territorial dispute and subsequent boycott on Japanese goods. Both Toyota Motor Corporation (ADR) (NYSE:TM) and Honda sales are down year-to-date, and Ford Motor Company (NYSE:F) appears to be picking up on their lost sales.
Earnings potential
As Ford Motor Company (NYSE:F) continues to take market share in the U.S. and China, it has fantastic potential to grow its earnings. Analysts expect those earnings to be flat for this year and rise just 10.5% annually over the next 5 years.
A weakening European economy is mostly to blame, as Ford takes steps to curb its operations in the region. I believe the company is making the necessary moves to cut down on its operational losses, and allow it to better grow earnings in the long-term.
Additionally, most analysts expect the company’s tax rates to rise this year, after receiving significant tax breaks in recent years. While an increase in taxes may dampen earnings in the short-term, the long-term growth prospects still look very strong.
Ford Motor Company (NYSE:F) has consistently proven analysts wrong over the last four quarters, beating estimates every time. I see no reason that trend won’t continue. The company is doing all the right things, and growing market share in the two largest markets.
Fundamentals
Ford Motor Company (NYSE:F) trades for just 9.5 times trailing earnings and 8.44 times forward earnings. Comparatively, the automaker industry trades for a trailing PE of 19.5 and a forward PE of 14.7. The company also pays nearly twice the dividend of its peers, yielding 2.8%.
Certainly, trailing earnings numbers are helped by the significant tax breaks U.S. car companies received last year. Ford is still priced lower on a trailing PE basis, however, than its Detroit counterpart General Motors Company (NYSE:GM), which trades at a PE of 11.
The company’s balance sheet is loaded with debt. Its debt-to-equity ratio hovers close to 6. But this metric is mostly due to its financial services arm, which is actually quite profitable. Only about $16 billion of the company’s debt goes toward financing operations. Adjusted for that figure, the company’s debt-equity ratio falls below 1.
In fact, the company has taken steps to reduce debt levels significantly in the past three years while improving its credit rating by keeping plenty of cash on the balance sheet. Its quick and current ratios are 2.5 and 2.8 respectively. While investors ought to pay attention to debt levels, Ford Motor Company (NYSE:F) current position is not something to deter potential investments.
The bottom line
The future looks bright for Ford Motor Company (NYSE:F) as sales and market share rise in the U.S. and China. Fundamentally, the stock is still inexpensive, and I believe analysts are underestimating Ford’s profits just as they’ve done every quarter for the past year. Eventually, the market will shift gears, and send the stock price driving higher.
The article Getting in Gear With Ford originally appeared on Fool.com.
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