Ford Motor Company (F) is expected to double its earnings per share when it posts quarterly results Thursday, but if past is prologue, that won’t be enough to get Ford stock moving as it should.
As we’ve noted before, the risks to the global auto market are probably already factored into the Ford stock price. Yes, there are reasons to claim that we’re at the top of the cycle. But then Ford stock’s valuation is very low. Indeed, it looks like a bargain.
Ford stock currently changes hands at not quite 7 times forward earnings, yet it has a long-term growth forecast of 10% per annum. By comparison, the S&P 500 has a more expensive forward price-to-earnings ratio of 17.8 on a projected growth rate of less than 6% a year.
At the same time, Ford’s forward P/E offers a 25% discount to its own five-year average, according to Thomson Reuters Stock Reports.
It’s also the case that Ford keeps printing remarkable sales results. F has long run as a No. 2 to General Motors Company (GM) in the U.S. monthly sales race, but March was a blowout for the automaker.
As I pointed out earlier last week, Ford sales rose 8% last month to 254,711 vehicles — its best showing since 2006. Notably, this sales performance is mostly due to higher margin SUVs and trucks: SUVs saw a 13% increase in year-over-year March sales.
In other good news, Ford is doing well in China at a time when the world’s largest car market is supposed to be slowing on lower economic growth. March sales in China climbed 5% year-over-year to 114,788 vehicles. Alongside this great number, Ford saw a 14% sales gain in China sales for the first quarter.
Ford Stock Suffers From Sour Sentiment
So it should come as no surprise if Ford delivers a wide earnings beat, as it did last quarter. For the three-month period just ended, Wall Street expects Ford stock earnings to double to 46 cents a share from 23 cents a share a year ago, according to a poll by Thomson Reuters.
Revenue gains should also be healthy. Analysts, on average, see top-line growth of 12.5% to $35.76 billion.
The problem is that even as Ford maintains a steady stream of solid earnings and sales, market sentiment remains highly suspicious. Almost 40% of March sales were to customers like car rental companies, which get a break on price.
In fact, retail sales fell 5% last month, and on a seasonally adjusted annual rate, U.S. light-vehicle sales dropped to a 13-month low of 16.56 million in March.
Against this backdrop, F stock is off 2.4% for the year-to-date, which lags the broader market by 4 percentage points. General Motors is also negative on the year, so even a great earnings report and outlook may not be sufficient to break shares out of their rut.
When market-wide sentiment is neutral at best, it’s tough to win over hearts and minds. Nevertheless, the valuation on F stock makes it a buy for patient investors.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
