The last few years haven’t been too kind for the Ford Motor Company (NYSE:F). F stock is down roughly 30% over the last three years, as automobile demand has slowed to a crawl. But you wouldn’t have realized that looking at Ford’s recent performance. F stock has surged since the end of summer.
The big-time gain for F has been attributed to the effects of Hurricane Harvey and Hurricane Irma (sales of automobiles almost always spike after a big natural disaster). But the real winner for Ford is exactly what has been bought in the wake of those two disasters.
Truck sales at Ford have surged in recent weeks, directly impacting the automaker’s bottom line. Even better is that F continues to hitch up its horsepower thanks to trucks, SUV’s and other similar vehicles. In the end, this focus on heavy-duty will be Ford’s saving grace over its rivals and help keep those special dividends coming.
Rising Truck Sales At F
Trucks have always been a way of life at Ford. Its F-150 pick-up truck has been the company’s best-selling truck for 40 consecutive years since its launch, with more than 26 million sold since 1977. And in the wake of Harvey and Irma, Ford is about to sell a few more.
Pickup truck sales have gone through the proverbial sunroof this past September, as many American’s have begun to replace vehicles that were destroyed by Harvey and Irma. Both storms managed to do the most damage to two hotbeds of pick-up/truck sales –Florida and Texas. Because of that, all manner of automakers — From General Motors (NYSE:GM) to Toyota (NYSE:TM) — managed to sell record numbers of trucks last month.
However, Ford managed to sell an insane amount.
Data providers Bespoke Investment Group, reports that F sold more than 82,300 F-series trucks last month. That was its second-strongest September for total truck sales ever, representing a gain of over 20% from last year at this time. Adding September’s sales to rest of this year, Ford has already had the fourth-highest F-series sales total since the 1990s.
This is amazing news for Ford. The reason comes down to margins.
The F-Series has been a cash cow for F, as it features some of the highest margins in the entire auto industry. Analysts have pegged the variable profit margins on a Ford pickup at $8,000 to $10,000 per vehicle. This compares to just $2,500 for Ford’s Focus compact cars. Part of the reason is that Ford has more free reign to charge higher amounts for its trucks, SUVs and crossovers than its cars — even if they share the same underlying platform and chassis.
So, the boost from Harvey and Irma will certainly have a great effect on Ford’s bottom line next quarter. But the real boost is that there has, once again, been a shift in sentiment for consumers. Thanks to lower overall gas prices and a rising economy, consumers are trading up to bigger vehicles lost during the recession. Subcompact, compact and midsize car sales all plummeted between 6.6% and 18% in the first six months of 2017. However, volumes for bigger vehicles like trucks and crossovers rose between 2.7% and 8.9%. That’s evident by Ford’s higher sales for its trucks all year.
And there’s no sign of that stopping.
Long Term Focus for Ford
And with that, Ford has started to reposition itself for the long term. While its latest strategic plan did feature plenty of talk about connected cars, automated vehicles and, yes, electric Tesla (NASDAQ:TSLA)-killers, a huge portion of it was about trucks.
Ford is moving about $7 billion in spending away from cars and putting it toward more profitable trucks and SUVs. This includes unveiling and working on new models, as well as focusing on the company’s highly popular Ranger and Bronco models. Sales expectations for the two are estimated to be quite strong right out of gate. Additionally, part of Ford’s plan includes taking this roadshow globally.
Throw in some heavy cost-cutting with this new emphasis on trucks and one can expect to see higher profits down the road for F as those better margins kick in.
Buying F Stock
Trucks have long driven the show at Ford and with the economy once again starting to move forward, lower gas prices here to stay and a “refresh” cycle beginning thanks to a couple of disasters, Ford is looking pretty.
Even better is that F stock is trading for ridiculously cheap multiples. Right now, investors can score Ford for just 3.5 times cash flows vs. about 5.5x for its main rivals. Likewise, its price-earnings ratio is a cheap 12.57 and it pays a safe 5% dividend.
In the end, these metrics make F stock a bargain, as Ford continues on its truck-focus and sales of these vehicles take hold.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.