Ford Motor Company (NYSE:F) did all it could Wednesday morning to stem the tide of a lousy 2017 that has seen F stock drop 7%. And yet, a beat-and-raise second quarter still wasn’t enough, with Ford shares off another 1%-plus heading into the opening bell.
The headline figures? Ford grew its net income 3.6% to $2.04 billion (51 cents per share). Better still, adjusted earnings of 56 cents for Q2 came in 30% better than Wall Street’s expectations for 43 cents.
Meanwhile, Ford squeezed out a fractional top-line gain to $39.85 billion, which was far better than analysts’ expected decline to $37.289 billion.
And looking forward, Ford raised its full-year earnings guidance to $1.65 to $1.85 per share. Heading into the quarter, consensus estimates forecast earnings of $1.51 per share for 2017. Should F achieve the midpoint of that guidance ($1.75 per share), earnings growth would be flat for the year — an important development, considering the previous estimates on Wall Street suggested a more than 14% decline year-over-year.
On top of all that, F stock entered this morning’s report yielding 5%-plus and trading at bargain-basement valuations of 7 times projected earnings and 0.3 times sales.
What’s a company got to do?
Digging Into Ford’s Earnings
A few other highlights from the second quarter:
- Ford’s Lincoln division had its best quarter in the U.S. in a decade and its best-ever quarter in China.
- Its F-Series — the high-margin bread and butter to its auto business — had its best second-quarter sales results since 2011.
- Ford Credit reported a 55% increase to its pre-tax income ($619 million).
U.S. incentives actually decreased as a percentage of vehicle price. Basically, Ford is offering less to get buyers into dealerships and get cars off the lot. The industry as a whole saw this metric rise during the quarter, so that’s a sign of strong demand for Ford.
Adding to that thesis, F saw its average transaction price rise five times the industry average in the second quarter.
So why is Ford stock down this morning?
I think part of it might be that foreign tax credits helped drive its second-quarter income. The automaker also will benefit from a lower tax rate in the second half, which allowed it to boost guidance. Better profits are better profits, but when it comes to catalysts driving earnings, you’d like to see things that are more within the company’s control.
And broadly speaking, there might still be some trepidation over Ford’s transition from old CEO Mark Fields to new CEO Jim Hackett, not to mention doubts about “peak auto” and declining auto sales broadly across 2017.
Still, Ford put up an outstanding quarter. Wednesday’s bearish reaction is stunning, to say the least.
Bottom Line on F Stock
In the end, it always boils down to what should we do?
A few weeks ago, I said investors should avoid F stock. Even before General Motors Company (NYSE:GM) beat on earnings and revenue estimates, I said investors should take GM over F. I wasn’t alone, either.
But is that theory different now that F stock had seemingly good earnings? Let’s make no mistake about it, these were good results. Under the hood, the business is stronger than we thought. The products are improving, too. Ford earned its highest rating in initial quality from JD Powers in its history. The automaker completed its first over-the-air update via Wi-Fi.
Ford isn’t Tesla Inc (NASDAQ:TSLA), with its seemingly endless bucket of hope, but things are undoubtedly getting better here.
I’m cautious, but other investors may be more convinced following Q2 results. So for now, I just want to look at the short-term to see when it would make sense to enter if you are feeling bullish.
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As mentioned before, shares are down between 1% and 2% to the $11.10 level in Wednesday’s premarket trade.
F stock should open sitting right above its upward-trending 50-day moving average around $11.10, and that should act as a level of support. Additionally, Ford shares have been basing nicely around $10.90. That allowed it to move higher and form somewhat of a uptrend (purple line). Also look for this to act as support.
So long as Ford stays above these levels, investors can stay long. However, we should know within a matter of days whether these levels will fall. That’s an attractive risk-reward, since support is so close. If it fails, we’re out. If it maintains, you can stay and consider buying more.
Also, again, Ford is dirt-cheap, pays more than 5% in dividends and is now riding what is hard to interpret as anything other than an excellent second-quarter report. All of these factors should help support shares in the near-term.
Ford stock isn’t fixed, but it looks much better today.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
