Ford Motor Company (F) enjoyed record profits in a quarter that topped Wall Street’s expectations, but it remains to be seen if the early pop in Ford stock can at last stick past a few sessions.
Hopefull it will. Ford stock is stuck in a frustrating middle. Fundamentals and technicals say “buy,” but investors remain convinced that the good times in the U.S. can’t roll much farther.
As we’ve noted before, Ford stock is a buy thanks to a compelling valuation and improving fundamentals — but only for patient investors. That’s because market-wide sentiment looks to be neutral at best right now, and is decidedly skeptical toward the automakers.
Based on sales, margins and surprising global resilience, F stock deserves a higher multiple. And yet, the market has yet to concede the point.
That could change if Ford’s quarter (in which it sees no industry slowdown) can turn previous abortive breakouts into an uptrend with legs. After all, shares did gain as much as 3% as of afternoon trading.
Click to Enlarge And Ford’s stock chart hasn’t looked this good in a while. Shares struggling with the 200-day moving average for more than a year have finally broken resistance at that key level. (Note that we did see this same pattern fail to stick six months ago.) Furthermore, F stock is closing in on making the buy signal of a golden cross.
The depressing reality, however, is that Ford has failed to hold onto gains after reporting bullish sales and earnings news in the past. The market just can’t seem to shake the fear that U.S. auto sales have reached a cyclical peak.
Ford Stock Deserves Props for a Record Quarter
Maybe the latest results will change investors’ minds: For the most recent period, Ford net income more than doubled thanks to strong pricing of ultra-popular F-150 pickup trucks in the U.S., SUV sales and an accelerating turnaround in Europe. China — the world’s largest car market — continued to look healthy. As expected, South America produced an operating loss, weighed down in particular by Brazil.
Ford reported net income of $2.45 billion, or 61 cents a share, up from $1.3 billion, or 29 cents a share, a year ago. On an adjusted basis– which is what analysts care about — earnings per share came to 68 cents. The Street, meanwhile, was looking for EPS of only 48 cents a share, according to a poll by Thomson Reuters. That’s a massive earnings beat.
The top line also exceeded expectations by a comfortable margin, rising to $37.7 billion against a forecast for $35.7 billion. Ford only reaffirmed its full-year outlook because it expects the second half of the year to be hurt by planned factory shutdowns and other well-telegraphed issues.
I hope I was wrong when I said that Ford stock couldn’t hold on to any post-earnings gains for very long. But even if the market remains stubborn on the Ford story, it’s still a buy. As Morningstar analyst David Whiston told Bloomberg:
“When people think there’s no more growth, no matter what you do, you don’t get credit for it. It’s unfortunate because I don’t see a recession imminent for the U.S. auto industry. They’ll be printing money in North America for quite a while. It could be several years.”
Perhaps we’ve hit the inflection point. Perhaps not. But at some point the market will pay more for this kind of performance, and the dividend yield of 4.2% sure makes the wait easier.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
