Ford’s Deep Holiday Discounts Offer Good Tidings for F Stock

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In a bid to regain market share, Ford Motor Co. (F) is gearing up for a big holiday selling season by offering even deeper discounts on most of its vehicles, and that could ultimately be a good thing for F stock.

Ford's Deep Holiday Discounts Offer Good Tidings for F StockFord is fresh off reporting record results in North America, driven by demand for the new aluminum bodied F-150 pickup truck, but the market chose to focus on the blemishes on the most recent quarter.

Indeed, Ford stock is off 7% since it reported earnings earlier in the week. The North American market is purring along, but investors are increasingly worried about results in the rest of the world. After all, that’s where growth is going to come from — but everything from a slowing Chinese economy to a stronger dollar is working against that.

F Stock’s Global Outlook

Sales in Europe are looking better, but the region still posted an operating loss, as did Ford’s business in South America. Sales volumes in the Asia-Pacific region declined thanks to softer demand from China — operating profit there was cut in half.

Continuing weakness in China and emerging markets has Ford being cautious in its outlook, and that’s flowing through to F stock.

The auto company also missed Wall Street’s average earnings estimate.

True, F stock fell further after news of the deeper discounts broke — probably because Ford will sacrifice some margin to the effort — but on the whole, it should pay off in the longer term.

Ford needs to regain the market share it lost when it was tooling up factories to manufacture the aluminum F-150. The two-year process hurt inventories of the company’s popular vehicle. Besides, doubling down on the momentum Ford has on its home turf makes strategic sense.

F Stock Helped by Sales Close to Home

Ford’s U.S. sales are up 4.7% through the first nine months of the year. They soared 23% in September when inventories of F-series vehicles got back to normal.

This is all to the good, because North America has to do much of the heavy lifting. Timing is favorable too.

Ford stock has an unusual opportunity to grab market share over the holidays. The scandal at Volkswagen (VLKAY) is a gift for the competition and deep discounts are a good way for Ford to capture some of its would-be customers.

To that end, Ford’s Friend and Neighbors Program will offer up to $2,000 on already existing incentives, according to a dealer planning guide obtained by Bloomberg. The promotion — slated to run from Nov. 3 to Jan. 4 — applies to almost all new 2014, 2015 and 2016 models.

Certain high-end cars like the Ford Mustang aren’t included.

Bottom Line

The market is fretting about what it all means for the current quarter, but that’s being shortsighted. Ford said promotions and the advertising that goes with them will cause fourth-quarter profit to decline year-over-year.

The market is right to recalibrate what it’s willing to pay for F stock given the fourth-quarter profit picture, but forward earnings still promise strong growth.

The Street is looking for earnings to hit $1.91 a share in fiscal 2016, according to data from Thomson Reuters. That would be a 16% increase over this year’s expected per-share profit.

And yet F stocks trades at less than eight times forward earnings — and pays a dividend with a yield of 4% at current levels.

The sales event is an investment in Ford’s future. There’s not much it can do about the gloomy global picture, so leveraging its U.S. strength makes good sense.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/10/ford-f-stock/.

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