Ford Motor Company (F): Profits in the Future are Closer Than They Appear

Opponents in the race

Toyota Motor Corporation (ADR) (NYSE:TM) is off to a good start. Its auto sales for January have been very impressive in the US. It has recaptured its position as the world’s top automaker by dethroning archrival General Motors Comapny (NYSE:GM) as it recorded a sale of 9.75 million vehicles globally in 2012, which exceeded GM’s sales of 9.29 million vehicles.  Toyota’s revenue increased 9.3% to $65.56 billion, whereas GM booked revenue of $39.30 billion. GM also missed estimates on earnings per share of $0.51 at $0.48, whereas Toyota posted a 22.2% rise in earnings per share to $0.39 in the third quarter of fiscal 2013 ended on Dec. 31, 2012 from the same quarter of the prior fiscal year.

The secret of Toyota’s comeback has been its policy to work on the quality of the product rather than running behind numbers. Also, since late 2010 the North American region has generated nearly all of GM’s profits. However, GM’s North American market share has slipped during that time. It has raised doubts about the sustainability of this business. Compared to the previous year, adjusted earnings before interest and taxes in North America for Q4 of GM was slightly down. Also, North American market share dropped from 17.5% to 16.6%. GM has plans of introducing about 20 new models over the next two years, which can help it to bounce back. The company is also planning to redesign some cars, in order to ascend the competitive ladder. Some of the redesigns include the Chevy Impala, GMC Sierra, and a new Chevy Corvette. Its brand name is something that has helped it in marking a strong position in the automobile industry, and the company still has the power to rule the road.

The pit stop

Ford expects 2013 to be another strong year, with the company’s total operating profit in line with that of 2012. Ford is currently paying a dividend of 3.1% and the current picture is brighter compared to that of previous years. Hence the company is likely to continue to reward shareholders with a dividend.

Ford is expected to grow earnings annually at a rate of 8.64%. This is approximately in line with the growth expectations of the overall market. However, with Ford’s 3.1% dividend, investors should reasonably achieve a compound annual growth rate of nearly 12% if dividends are reinvested.

The company’s turnaround strategies have helped it reach where it is today, and leave me bullish on the stock.  I’m looking forward to great returns in a year or two.

All in all, Ford has returned from a bumpy ride to a smoother drive and is ready to hit the freeway in no time.

The article Profits in the Future are Closer Than They Appear originally appeared on and is written by Rishabh Jain.

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