Can Lincoln Boost Ford Stock?

by Trefis Team
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Lincoln, the luxury marque of Ford Motor Company (NYSE: F), competes with General Motor’s Cadillac, Toyota’s (NYSE:TM) Lexus and Daimler’s (ETR: DAI) Mercedes Benz brands in the North America luxury vehicle segment. Lincoln contributes about 4% of Ford’s stock value according to our analysis.

We expect Lincoln’s share of total North American auto sales to hit 1.19%% over our forecast period, up from 0.87% in 2010. This should exert modest upward pressure on Ford’s stock price. Primary growth drivers for Lincoln in coming years: several new models and Ford’s improving financial position. How did we reach this conclusion? Read on…

We estimate that Lincoln’s North American market share grew from 0.65% in 2005 to 0.79% in 2009, reflecting Lincoln’s strong brand image  as well as purchase incentives. Lincoln sales in May 2010 were 7,755. Year-to-date sales stand at 37,444 according to Ford’ May sales press release.

A simple projection gives us a figure of 91,729 Lincoln sales, fewer than the Trefis forecast of 120,776 unit sales based on a 0.89% market share in 2010. But given that automotive sales typically peak in Q3 and Q4, we expect the Trefis forecast to pan out over the calendar year. You can modify our forecast for Lincoln’s market share below to see its impact on Ford’s stock.

Reasons to Like Lincoln

1. Ford set to expand Lincoln brand offerings, marketing & sales efforts

Ford plans to release seven all-new or significantly refreshed  Lincoln vehicles in the next four years. Ford plans to roll out a hybrid version of Lincoln’s flagship MKZ sedan later this year. The MKZ is expected to be the most fuel-efficient premium sedan in the market.

In a crowded luxury marketplace, Lincoln stands out for modern design and industry-leading technology, including highly fuel-efficient premium power trains.  Going forward, Ford plans to spend more on Lincoln product development and marketing, diverting resources from its soon-to-be-defunct Mercury brand. (Ford has announced that it will cease production of Mercury-branded vehicles by the end of 2010.) Ford also plans to expands its Lincoln sales and service teams.

2. High reliability scores

Lincoln ranked second only to Porsche in terms of long-term reliability in the 2010 J.D. Power and Associates Vehicle Dependability Survey. Ford ranked 5th in the J.D. Power Initial Quality Study in 2010, beating big auto manufacturers like General Motors and Toyota. The latter survey tracks complaints during the first 90 days that a consumer owns the car. According to the survey results, GM’s Cadillac tumbled from third place to a tie for 12th place, while Toyota fell to 21, down from  6th position last year.

3. Ford’s improving financial position

Management expects Ford to be profitable this year after a dire 2009. Although the company has limited and expensive access to capital due to its junk-rated bonds, Ford is certainly doing better than competitors such as General Motors and Chrysler. Improving financial health will allow Ford to absorb costs associated with shutting down Mercury and reinvesting in Lincoln.

4. GM and Toyota recalls: bad for them, good for Ford

General Motor (GM) had announced that it would be recalling 1.5 million vehicles, including certain Cadillac models. Toyota’s 8 million vehicle recalls over the past year have included Lexus models. Recalls from both manufacturers should benefit Lincoln in the short term.

You can see our complete $12.92 Trefis price estimate for Ford’s stock here.

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