Ford Stock is a Buy Despite the Post-Earnings Dip

Ford Motor Company (F) posted good third-quarter results. They just weren’t good enough for most investors, though — sending Ford stock down more than 4% on Tuesday morning and putting an end to what was shaping up to be a respectable recovery effort.

Ford Stock is a Buy Despite the Post-Earnings Dip Is the selloff of F stock a mistake, making it a buying opportunity for a company that’s actually in the midst of an impressive turnaround?

Or, was the Ford earnings report a sign that the company is a habitual disappointment and should indeed be dumped by investors?

Broadly speaking, investors can’t see for the forest for the trees. Ford Motor Company is firing on all cylinders again, and Ford stock is a bargain worth having right now.

Ford Earnings

In the grand scheme of things, the earnings miss wasn’t that bad. Ford earned 45 cents per share, while the pros were calling for a bottom line of 46 cents per share of F stock. Unexpectedly high taxes were to blame for the one-cent miss. Had the company’s tax rate rolled in at the anticipated 32% rather than the actual 33%, Ford would have posted an earnings beat.

Meanwhile, revenue of $35.8 billion easily topped analyst estimates of $35.5 billion, and that growth was despite the adverse impact of a strong U.S. Dollar.

Its North American operation decidedly led the charge.

Overall sales were up in Europe, but fell in the Middle East, South America, and Asia. The company managed to turn a small profit in Asia, and its losses in South America are shrinking, but the company still lost $340 million overall outside of North America.

For its North American unit, however, sales were up a whopping 19% on a year-over-year basis, which led to a pretax profit of $2.7 billion for the region, and a profit margin of 11.3%. It was the best-ever third quarter for Ford Motor Company, and the best quarter ever for its North American division. It just wasn’t enough to satisfy owners of Ford stock, who were clearly counting on better numbers.

Ford’s Truck Gambit Pays Off

Despite the earnings miss, there’s no denying CEO Mark Field’s gamble on an all-new design — and an aluminum body — for its all-important F-150 pickup truck has paid off.

It was a difficult decision a year ago when the company had to temporarily shutter some production facilities to retool for the all-new design. It wasn’t a cheap refit either, leading to income of only 24 cents per share of Ford stock in Q3 of 2014 despite a top line of $32.8 billion.

The automaker didn’t reach full production capacity for the F-150 until June of this year, leading to the delivery of 207,000 pickup trucks in Q3, and re-securing the F-150 as the best-selling vehicle in America.

Those numbers are huge, given the simple fact that the company’s F-series truck drive approximately 90% of its North American profits. It’s an even bigger deal now, however, as the redesigned F-150 generates about $2,000 more in profit per vehicle than the prior design did.

Bottom Line for Ford Stock

Yes, the iconic automaker missed its earnings estimates. What seems to have been lost in the midst of the news of the shortcoming, however, is that Ford was still wildly profitable in the third quarter in spite of uncertainty in each of the overseas markets where it operates. While those operations remain a bit of a coin toss, they’re all getting at least slightly healthier.

It’s not as if Ford stock costs a fortune either, and leaves no room for a tiny miss. The projections for a profit $1.69 per share this year and $1.93 per share of F stock next year are completely plausible given the Ford earnings results for Q3. And those numbers translate to a forward-looking P/E of only 7.77 — a pittance considering the turnaround story is almost done.

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

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