Ford: Built to Last

11/08/2017 5:00 am EST

Focus: INDUSTRIALS

Stephen Mauzy

Income-Investing Specialist, Wyatt Investment Research

Ford Motor Co. (F) is the Rodney Dangerfield of U.S. automakers. It doesn’t get any respect from investors. The shares have backfired and sputtered for most of 2017, notes Stephen Mauzy, edit of Wyatt Research's Daily Profit.

Ford is perceived as embodying more of the 20th century than the 21st. The continual success of the F-150 truck series fuels the perception. The F-150 has been the best-selling vehicle in the United States for the past three decades.

Recent sales trends point to the streak going unchallenged for another decade. Ford reports that F-150 sales were up 14% for the latest quarter. Ford also reported customers paid an average of $45,400 per F-150, up $2,800 from a year ago. 


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The reality is that Ford depends on the F-150 to make money. The good news is that the F-150 delivers.  The latest quarterly numbers -- driven by the F-150 -- were respectable. Ford reported a 63% increase in net income. EPS posted at $0.39 to easily breeze past consensus estimates for $0.33.

Ford should end 2017 better than it ended 2016. Management expects full-year EPS to post between $1.75 and $1.85. The consensus estimate had EPS pegged at $1.74 for the year. Either way, you’re looking at a forward P/E multiple below 10. 

Though the F-150 is a perpetual money maker, it’s a boring money maker. It’s a truck, after all. What’s more, it’s a truck powered by technology of the 19th century. It’s powered by an internal-combustion engine. It’s driven by something carbon-based, as opposed to something silicon-based.

Ford is the last of the “Big Three” to stick a finger into the electric socket. It announced last year that it will spend $4.5 billion on electric vehicles. When the $4.5 billion will be spent and how allocated to self-driving technology remains to be seen.

Investors perceive Ford as a technology laggard. On this front, perception comports with reality. But is that so wrong if the technology has little economic value to date?

Let someone else lose money developing dubious electric/autonomous technology, and then pinch the technology if need be. In the meantime, focus on selling what customers really want.

In the United States, customers want heavyweight vehicles, such as trucks and SUVs, and they’re willing to pay higher prices. Ford has focused on the politically unpardonable -- giving its customer what they demand. 

Yes, perception might cause Ford’s share price to lag. As long as Ford continues to perfect what makes money -- the F-150 -- income investors can be assured that their dividend is built to last. That’s reality.  What’s built to last and yields 5% dividend yield is eventually worthy of investors’ respect.

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