When it comes to American automakers, Ford Motors (F) has weathered the recent storm far better than the rest. Today, the company is seeing the benefit of a weaker dollar through stronger sales in its European division. Ford’s European unit is reporting that sales this year are up 12.3% through September to 152,600 vehicles for the month. In addition, Ford has gained market share and now claims 10.1% of the market for European car sales. The reported success in the European market is sending Ford shares higher by about 8% at midday.
It is clear that the fundamentals have begun to recover in Ford’s business after two horrendous years, and the likelihood of further weakening of the dollar should continue to make Ford’s cars attractive to buyers overseas. However, Ford’s European unit was careful not to say that there are not real concerns for the future. There is a fair amount of uncertainty going into 2010, as many countries are backing away from scrapping programs which have helped Ford and other auto sales recently. Also, not to be discounted are the incentives offered by the German government that dwarfed the U.S. Cash for Clunkers relative to GDP.
While there is no doubt that Ford stands above the rest, that really is not saying a lot when it’s main competitors have been forced into bankruptcy and government aided rescue recently. From a fundamental valuation perspective, we are comparing Ford against every other stock in our coverage universe not just its most immediate competitors. As of this week’s report, we have a Fairly Valued stance on Ford, and it is nearing the upper end of our expected trading range. For instance, Ford historically trades for 1.7x to 3.9x its cash earnings per share, and Ford is currently near the high end of that range at 3.3x. On a price-to-sales basis, Ford actually trades above its historically normal range. The current valuation metric is about .2x, whereas the historically normal range over the last ten years is .08x to .19x. We are not suggesting that Ford is a bad investment here, but by our methodology, this stock is not attractive above $6.
At this point, Ford is in jeopardy of a downgrade in our methodology over the next week or so because the stock has become a little expensive, even though the company is on firmer footing. Ford could be in great position to gain sales overseas as the dollar weakens, and they could also benefit from general improvement in the U.S. economy as well. However, we prefer to base our investment analysis on what is observable and at this price Ford is just a little too pricey.
