Global Growth Concerns? Not for this 5 Star Stock
06/20/2016 8:00 am EST
S&P Global Equity Research forecasts that US new light vehicle sales volume will rise 1% to a cyclical peak and industry record of 17.6 million units in 2016, before easing slightly in 2017, suggests Efraim Levy, global equity analyst in S&P The Outlook.
Meanwhile, J.D. Power projects that global new light vehicle sales volume will increase 3.0% in 2016 to 91.9 million units, and 2.0% in 2017, led by China growth.
Ford Motor (F), the second-largest U.S.-based producer of cars and trucks, carries our highest investment recommendation of 5-Stars, or Strong Buy.
Our recommendation is based on our view that Ford will benefit from rising global vehicle demand, led by growth in the China market and improvement in Europe, while maintaining a supportive balance sheet, and that Ford stock has attractive total return potential.
CEO Mark Fields is largely following the path laid down by his predecessor, Alan Mulally, who successfully changed Ford’s company culture. Fields is continuing Ford’s expansion in the very important China market, where it has been gaining share.
In addition, Ford is investing in alternate propulsion vehicles, as well as autonomous driving vehicles, as it seeks to add to its mobility and environmental sustainability offerings.
We see profit expanding in 2016, as Ford benefits from new products and a favorable mix, along with improved international margins.
We view positively Ford’s increased annual capital spending plans of $7.5 billion in 2016, up from $6 billion last year, as this reflects improved sales prospects.
Gains should come from both international and US volumes. We have favorable expectations regarding dividend growth and share repurchases.
We consider the balance sheet to be sufficiently strong for Ford to maintain its dividend while supporting product investment.
In addition to the $0.60 annual dividend – yielding 4.6% -- we expect special dividends during favorable parts of the business cycle.
Risks to our recommendation include higher gasoline prices, weaker-than- expected demand for Ford vehicles, and higher raw material costs.
On top of this, competitive pressures in Europe could intensify and performance in China could deteriorate, with demand slowing and downward pressure on pricing occurring.
By Efraim Levy, Global Equity Analyst at S&P The Outlook