Tuesday, January 25, 2011

The turnaround at Ford

The turnaround is clearly under way at Ford and things are going nicely. Ford is in the best position of the 3 auto makers. Ford has already redesigned it plants and started producing better looking more fuel efficient cars. The company has cut many of its unprofitable brands and focused on improving its core brands.

The company is the only United States auto company that did not require a bailout. Chrysler and General Motors would not have survived the economic downturn without government cash. Ford is improving its financial position. The company has reduced its cash burn rate and now has more than $32 billion dollars in cash. That makes 2 straight years of positive free cash flow which is a difficult to do in the automobile industry.

Let’s take a look at Ford’s internals.

Shares trade at 8.65 times earnings and 8.3 times forward earnings. Shares trade at just 0.45 times earnings growth and 0.46 times sales. The company’s revenue came in at $133 billion dollars Gross margins were19.3% and operating margins were at 5.3%.

Return on assets is improving at 3.02%. The five year earnings growth is expected to be 19%. That’s a great rate for an industry which participates in an industry that had a negative growth rate just 2 year.

The stock is still expensive based on its book value. The company still has a massive debt load of $65 billion dollars. At $17 a share, Ford still looks undervalued when compared to its potential earnings growth and the P/E ratio of its competitors. The stock has had a major run but still has room for growth as its internal metrics continue to improve.

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