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Seriously - Who Doesn't Like Ford?

Summary

Ford's first-quarter 2016 performance set a number of records, and its auto sales pace in June was reassuring.

The company continues to do well in China, and while concerns over Brexit and challenging conditions in Brazil and Russia remain, we think Ford is on solid ground.

Our fair value estimate of Ford is $16, but there is upside to the high end of our fair value range. At 7 times 2016 EPS, it's certainly a consideration.

Its cash balance is in excess of its auto-related debt, and liquidity remains robust. Bankruptcy risk at this time is minimal. Is the market too punitive on shares?

We recently wrote on our website about some of the red flags we were witnessing in the US auto industry, including our concerns about the subprime segment of the auto-loan industry, but the automakers have still come a long way from the depths of the Financial Crisis. Ford (NYSE:F), in particular, is a much wiser company since then, in our view, and frankly, it's hard not to like the company's product line-up and continuous drive for efficiency. First-half 2016 sales across the industry weren't bad (June was particularly good for Ford), and even the company's performance in China remains resilient in the face of uncertain economic conditions in the country. We like this automaker...a lot, and recent news was very welcome given somewhat concerning May performance.

Ford set records almost across the board during its first-quarter 2016 results (see image above), released in April, and especially in the areas where it counts. Record company pre-tax profit and auto operating-related cash flow were solid during the period, and Ford more-than-doubled net income, operating earnings per share and its auto operating margin. Clearly, Ford is doing a lot of things right, and while we fully acknowledge the company is a cyclical industrial that is tied to fickle consumer demand, it may not be as levered to the boom-and-bust characteristics of its past--i.e. those that put GM (NYSE:GM) and FiatChrysler (NYSE:FCAU) into bankruptcy some years ago. Brazil and Russia remain under pressure, and the fallout from Brexit hasn't been fully realized yet, but Ford remains on solid ground, in our view.

Here's the kicker. Shares are trading at ~7 times 2016 operating earnings per share (see below), and the company's cash at the end of the first quarter of 2016, ~$24 billion, significantly exceeds its automotive-related debt of $13 billion. Liquidity of more than $35 billion suggests bankruptcy risk is also arguable the lowest its been in memory. Is it time for shares of Ford to catapult -- or is the market still too jittery for consumer-driven, industrial cyclicals? What gives? We're keeping a close eye on the company, in any case.

Ford's Investment Considerations

Investment Highlights

• Ford has been around since the turn of last century and produces and...


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