ModernGraham Valuation: Ford Motor Company (F)

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Company Profile (obtained from Google Finance): Ford Motor Company (Ford) operates in the global automotive industry. Ford operates in two sectors: Automotive and Financial Services. The Company manufactures or distributes automobiles across six continents. Its automotive brands include Ford and Lincoln. The Company’s Automotive sector includes Ford North America, Ford South America, Ford Europe, and Ford Asia Pacific Africa regions. During the year ended December 31, 2012, the Company sold approximately 5,668,000 vehicles at wholesale worldwide. Other Financial Services includes a range of businesses, including holding companies and real estate. The Company and its subsidiaries are also engaged in other businesses, including financing vehicles. Ford provides financial services through Ford Motor Credit Company. Effective September 26, 2013, Ford Motor Co acquired Livio, a developer of software.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Calculator)

Key Data:

MG Value $80
MG Opinion Undervalued
Value Based on 3% Growth $30
Value Based on 0% Growth $18
Market Implied Growth Rate -0.16%
Net Current Asset Value (NCAV) -$7.05
PEmg 8.18
Current Ratio 1.99
PB Ratio 3.29

Balance Sheet – 9/30/2013 

Current Assets $152,511,000,000
Current Liabilities $76,490,000,000
Total Debt $72,562,000,000
Total Assets $201,071,000,000
Intangible Assets $86,000,000
Total Liabilities $180,604,000,000
Outstanding Shares 3,982,000,000

Earnings Per Share – Diluted

2013 (estimate) $1.28
2012 $1.41
2011 $4.94
2010 $1.66
2009 $0.86
2008 -$6.46
2007 -$1.40
2006 -$6.72
2005 $1.14
2004 $1.80
2003 $0.50
2002 $0.19

Earnings Per Share – Modern Graham

2013 (estimate) $2.07
2012 $1.80
2011 $1.31
2010 -$1.14
2009 -$2.54
2008 -$3.60

Conclusion:

Ford Motor Company has improved its situation considerably since ModernGraham last reviewed the company in 2009.  Since then, earnings have grown consistently, and the company now appears suitable for the Enterprising Investor, who is able to take on more risk than his Defensive Investor cohort.  The company fails to pass all of the requirements of the Defensive Investor because its current ratio is not high enough and has not consistently paid a dividend for over 10 years (the company took suspended dividends from 2007 to 2011).  From a valuation standpoint, the company fares very well as a result of the EPSmg (normalized earnings) growth from -$3.60 in 2008 to an estimated $2.07 for 2013.  This is significant growth and far outpaces the negative growth implied by the market at this time.  As a result, the ModernGraham valuation model finds Ford Motor Company to be undervalued.  Enterprising Investors should proceed with further research to determine whether the company is right for their individual portfolios, while keeping in mind the 7 Key Tips to Value Investing.

What do you think?  Is Ford Motor Company undervalued?  Is the company suitable for only Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Ford Motor Company at the time of publication and had no intention of entering into a position in the next 72 hours.

Photo Credit:  Andrew Magill


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