Ford Motor Company (F): Solid 2013 Belies A Possibly Volatile 2014

Ford Motor Company (F): Solid 2013 Belies A Possibly Volatile 2014
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Sterne Agee analyst Michael Ward, rates Ford Motor Company (NYSE:F) as a Buy and lowers 2015 estimate and price target in a 4Q13 review.

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Ford Motor Company (NYSE:F)’s financial performance over the next 12 months is likely to be volatile. The F-series pickup truck is Ford’s most important vehicle on a global basis and the company is expected to begin the changeover to an all-new model in the second half of 2014, resulting in 11 weeks of lost production. In the long run, the competitive improvements of the new F-series could disrupt the pickup truck segment allowing Ford to generate above-market returns.

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Calendar year 2013 was a solid year for Ford

The company reported record financial results in North America, more than doubled capacity in China, further restructured European operations, and reduced its global pension deficit by more than 50%.

In late December 2013 Ford Motor Company (NYSE:F) offered cautious guidance for the launch of the new F-series pickup truck and with the release of fourth quarter earnings provided additional details regarding the impact of changeover on 2014 production. We believe production of the new trucks will begin in late September at Ford’s Dearborn, MI, facility but the downtime needed to prepare for the launch will disrupt the earnings cadence in 2014. In addition, the expected downtime to prepare the second facility in Kansas City will likely disrupt first quarter of 2015 earnings.

Ford’s valuation

Our 2014 estimate of $1.40 per share is unchanged but we have lowered our 2015 assumption to $1.85 per share from $2.00 per share to account for the changeover at the Kansas City truck facility.

We have reduced our price target to $18 per share from $19 per share to reflect our reduced 2015 earnings assumptions. Our target is an average of an EV/EBITDA and P/E metrics, using the historical valuation range and discounting 2015 earnings estimates. In the near term, we expect Ford Motor Company (NYSE:F)’s stock to remain range-bound pending the launch of the new trucks. Longer-term, an improved balance sheet, earnings acceleration in 2015, and yield support, along with the likelihood of more favorable capital allocation for shareholders over the next few years, support our Buy rating.

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