Ford Deserves A $12 Stock Price On Strong U.S. Sales

Vehicles sales for Ford Motors (NYSE:F) rose 13% helped by strong performances by F-series pick up trucks and Escape SUV, which were up 19% and 37% respectively. Sales for August highlight how Ford’s North American operations continue to remain solid. Overall, sales for the first eight months of the year are up 6% for the automaker. Ford’s sales growth in 2012 has trailed the overall auto sales growth but this was expected as the Japanese automakers recover from their previous year lows. Vehicle sales in 2011 were negatively affected by production and supply chain constraints caused by the tragic tsunami. Ford will now increase the production by 7% in the fourth quarter to meet the rise in demand. ^[1]

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Focusing on fuel efficient cars has been one of the main reasons why the automaker continues to do well in the U.S. In fact, by the end of the year, Ford will have eight cars in its portfolio with mileage in excess of 40 mpg. In total, Ford will invest $16 billion in its U.S. operations, including $6.2 billion in U.S. plants, to design, engineer and produce new and upgraded vehicles and components by 2015.

Strong performance by the auto companies in 2012 means the total light vehicles sales in the U.S. are expected to reach 14.5 million vehicles; upping the company’s previous forecast of 13.5-14 million vehicles.

Meanwhile, in Europe

The stock is down almost 30% in the last six months as uncertainty looms over its European operations. Fords operating loss in Europe swelled to $403 million in Q2 and the company expects the total operating losses in Europe to top $1 billion for 2012. Ford and other automakers face overcapacity issues but the stringent labor unions have not allowed car makers to shut down plants or lay off jobs. But there have been recent reports that governments might now be open to the idea of job cuts and plant closures as the auto industry continues to bleed red. It might be better to cut a few jobs rather than letting the whole industry die, the governments feel. ^[2] Ford plans to tackle its European woes by introducing 20 new models in the region by 2014 including new versions of Mondeo, Fiesta and Kuga.

We have a $12 price estimate for Ford, which is about 30% higher than the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

1. Chrysler Tops U.S. Carmakers In Best Month Since Clunkers, September 5, 2012, bloomberg.com [↩]
2. RPT-Europe’s carmakers ready cuts to emulate Detroit, September 3, 2012, reuters.com [↩]