Will Ford Surprise To The Upside For Q1?

As previously disclosed, Ford (F) has been a stock I keep a close eye on. For full disclosure I own F and I recently began driving a new Ford Fusion (My experience with the new ride may have possibly swayed my bias). Upon a surprisingly pleasant experience with the vehicle I looked into the company’s news and events. In doing so, I discovered a number of awards and accolades for various Ford vehicles, ranging from: U.S. News & World Report ranks Taurus #1, Fusion hybrids beats Toyota, Nissan and Chevy hybrids in Car and Driver’s test, Fusion and Excape named cars.com’s best hybrids for the money. I came to the realization that this company has completely turned itself around. I’m sure most people were already aware of this, but my perception of the company’s vehicles was so negative that it took me this long to realize it. Now Ford releases earnings for Q1 this Tuesday (analyst are expecting EPS of $.31/share), so the big question is if the impressive awards and accolades will materialize into appropriate revenue growth?

According to David Bailey and Soyoung Kim of Reuters, The automaker no doubt has benefited from the 2009 U.S. government bailouts of rivals General Motors (GM.UL) and Chrysler, and Toyota Motor Corp's (Tokyo:7203.T - News) massive recalls that led to congressional hearings this year, analysts say. However, that edge may begin to fade with Toyota offering company record incentives to rebuild U.S. sales, Chrysler reporting a first-quarter operating profit and GM repaying government loans and calling a 2010 profit a possibility. Consistency will be critical as Ford looks to generate positive cash flow, reduce a massive debt load and eventually return to an investment grade credit rating, analysts say.

This helps me understand why the stock is only trading at 16.4x earnings at an annual EPS of $.86. Investors are most likely anxiously awaiting for F to reinforce their 2010 and 2011 outlook because they feel that their recent success may just be a short lived run of luck. They basically are waiting to see if F can provide 6-8 quarters of consistent, great results.

Also mentioned in the article,

Through March, Ford's U.S. sales were up 37 percent while the industry was up 15.5 percent. Ford gained more than 1 percentage point of U.S. market share last year, not including the Volvo car unit it is selling, to 15.5 percent. Ford's quality and sales improvements and avoidance of bankruptcy give it an edge over rivals, said Logan Robinson, a professor at the University of Detroit Mercy School of Law and former industry executive. "With Chrysler and GM still owned by the government and the unions and with Toyota's present difficulties, I see a pretty good year ahead for Ford," Robinson said, adding that Chrysler's sales remain quite weak.

Ford’s Q4 2009 revenue was $35.4 billion and the average analyst estimate for Q1 2010 is $30.49 billion. Now with U.S. sales up 37% per the article, this leads me to believe that the Q1 estimates may have been set quite low, unless there was a dramatic drop in their global operations. We’ll see if that assumption is correct on Tuesday and see if they can surprise to the upside in top line revenue growth and EPS for Q1 like they have the past 4 quarters. For those who have been in the stock, let’s hope we can extend our gains and see a new 52-week high. BTW, Jim Cramer thinks it could go to $17.

Do not rely solely on the opinions of this blog or any other site when making an investment decision. Any investment could result in the risk of loss of capital. Please consider seeking professional advice before initiating your investment ideas.