Ford Stock in Neutral Amid Macro Headwinds

Ford (NYSE:F) vehicle sales posted 12% growth year over year (y-o-y) for the first half of 2011 on continuing demand for Ford’s fuel-efficient cars and crossovers. Ford vehicle sales in the second half of 2011 started on a strong note as well with July 2011 U.S. sales growing by 9% y-o-y led by Ford branded utilities and Lincoln. Even though we believe that Ford is favorably positioned to grow its market share through its refreshed fuel-efficient product line-up and its investment in new technologies, we remain cautious about the global economic scenario which is facing several macro headwinds. This will negatively affect consumer and business sentiment, which in-turn will hurt vehicle sales growth. Ford mainly competes with auto manufacturers like BMW (GR:BMW), GM (NYSE:GM), Daimler (ETR:DAI), Audi (NSU:GR), Honda (NYSE:HMC), and Toyota (NYSE:TM).

Our $14 price estimate for Ford stock is about 40% above current market price, which has taken a severe beating because of recent equity market sell-off on concerns over global growth. We discussed in our recent note why we are cautious on Ford in the near term despite our bullish fundamental view of the car company in Tapping the Brakes on Ford’s Stock Amid Macro Turbulence.

Fuel Efficient Cars Drive Growth in Near Term

Increased environmental awareness and $4 a gallon gas in much of the country has encouraged customers to look for smaller, more fuel efficient cars. In Q2 we saw this trend continue as oil prices remained volatile. Ford car sales were able to capitalize on this trend because of Ford’s push into fuel efficient technologies has helped it build one of the most impressive line up of fuel efficient vehicles. (See our previous post: Ford Driving Car Sales with Fuel Efficient Line Up)

Ford’s two new small cars – Ford’s new Fiesta and all-new 2012 Focus, are the fastest turning models at Ford dealer showrooms. Their combined sales were close to 27,000 in June 2011, up 66% year-on-year. ^[1] But Focus sales suffered in July 2011, due to low inventory. ^[2]

In the medium-term if global growth stalls and oil prices decline due to reduced industrial demand, this will likely help truck sales at the expense of car sales. On the other hand, if unemployment rates increase, then cars will likely be preferred over trucks due to its lower sticker price. In the long-term we expect continued economic growth in emerging economies which will drive the demand for oil, resulting in elevated level of oil prices, which will continue to reinforce the trend towards fuel-efficient, smaller vehicles and in turn drive Ford’s car market share.

You can drag the trend lines in the  modifiable chart above to see the impact of these trends on Ford’s stock value.

See our complete analysis for Ford.

1. Ford June Sales up 14 percent [↩]
2. Ford July Sales up 9 percent [↩]