Ford Worth $15.70, Shows Strength in U.S. Business and Core Brands

+6.18%
Upside
13.28
Market
14.10
Trefis
F: Ford Motor logo
F
Ford Motor

The automotive sector has had a challenging ride given the continuous economic crisis in the Euro zone and slowing growth in the emerging markets. However, the U.S. automotive market is showing strong signs of a recovery as sales volumes for the industry expanded by about 10% to 13 million units. Sales of Ford-brand vehicles, accounting for 96% of Ford’s (NYSE:F) total sales in U.S., rose 17% for the year backed by the revival in demand in the automotive market. [1] For the year 2011, the company had a market share of 16.5%, second only to GM (NYSE:GM) with a market share of 19.2% with Toyota (NYSE:TM) at a distant third position with 12.6% of market share.

We estimate a $15.70 price for Ford, which is about 20% higher than the market price.

See our full analysis for Ford

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North American Market Coming to Rescue

Ford expects to maintain its current market share of approximately 16.5% in the U.S., and considering the current competitive landscape in the automotive industry, the company will have to continue the product momentum with the introduction of some new models as well as the up-gradation of existing models. With persisting worries in the European Economy and w a sluggish recovery in the Asia Pacific and Africa region, the US market could serve as an oasis for the company which is seeking to its growth ahead.

Currently North America market contributes about 47% of total vehicle sales for Ford, and with the expected launches of new Fusion and Lincoln MKZ, the company is definitely looking to solidify its position going forward.

Moderate Inflation Level of Key Commodities to Improve Margins

The U.S. housing sector is yet to completely recover from the depths of recession and because of this slow pace of recovery, inflation level for key commodities like steel, aluminum and iron is expected to be low to moderate in near term. With the relatively moderate level of inflation for key commodities, Ford is expected to improve upon its existing gross margin. Also, the rise of demand in the Industry will further push the revenue growth in mid single digits in the near term.

Emerging Markets to Aid the Future Growth

After discontinuing the Mercury brand from its portfolio and sale of Volvo, the company is well set for consolidation and ready to focus on expanding its Ford and Lincoln brands across different geographies and is planning a capital investment in the range of $5.5 – $6 billion.

The company is also betting big on emerging markets like China, India, Brazil and Russia which will play a crucial role in determining the market leader in the Industry because of their potential market size in the next 5-7 years. The company launched new vehicles, including Focus and Ranger in emerging markets, and is expected to continue the expansion of its production facilities in these markets.

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Notes:
  1. WardsAuto.com/data-center []