Ford: Hitting on all Cylinders

09/02/2013 7:00 am EST


This company is hitting on all cylinders right now. It is on pace to deliver 16 million vehicles this year, the most since 2007, projects Brian Hicks, editor of The Wealth Advisory.

In its last earnings report, Ford (F) crushed the $0.37 a share expectation with $0.45 a share for the full year. Ford raised its pretax profit forecast, saying it will equal or exceed last year's $8 billion. The company previously projected its annual result would be in line with last year's.

The automaker also raised its annual automotive operating margin forecast to about equal to last year's 5.3%, after previously estimating the figure could be in line with, or less than, the 2012 result. Operating cash flow will be more than last year's $3.4 billion.

Ford made $4.77 billion in its home region during the year's first six months, driven by surging demand for Fusion family cars and F-Series pickups. The Dearborn, Michigan-based company is adding factory capacity to build more of both of those models, starting this quarter.

In North America, Ford has earned $2 billion or more, with an operating margin of 10% or more, in five of the past six quarters.

The $2.3 billion second-quarter profit in the region was achieved with US industry sales still running at roughly 1.5 million vehicles short of the 2000 peak.

The results in North America are being driven by sales gains, especially of lucrative F-Series pickups, said Matthew Stover, an analyst with Guggenheim Securities.

Reviving US housing sales, and a domestic energy boom, are fueling demand for full-size trucks, with F-Series deliveries jumping 26% to 198,643 during the quarter.

Ford cut its loss forecast for Europe to about $1.8 billion from $2 billion, which is very important, as that $200 million essentially goes right to the bottom line.

And in China, deliveries of the Focus increased 69% in 2013's first six months. That makes Ford one of the fastest-growing carmakers in the world's largest auto market.

Ford's Asia/Pacific/Africa operations earned a record $177 million in the quarter, after losing $66 million a year earlier. The automaker is introducing 15 new vehicles in China by 2015 to try to catch up with market leaders GM and Volkswagen AG.

We remain very bullish on Ford. The shares appear undervalued, and there's a lot of upside for the dividend. In fact, we expect a dividend hike when it reports 3Q earnings.

And over the next 12 months, we expect at least 50% upside for the dividend. There could be more.

Throw in at least 18% upside for the stock, and you have a solid investment here. We are raising our buy limit to $17.50. Ford is a Strong Buy under $17.

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