Bloomberg News

Ford Valued Like It’s 1999 Seen Beating Toyota to Peak

October 25, 2013

Ford CEO Alan Mulally

The higher value investors are placing on Ford followed a 17th-straight quarterly profit that showed progress in Chief Executive Officer Alan Mulally’s plan to extend beyond sales of trucks and sport-utility vehicles in developed markets that used to be the company’s strength. Photographer: Tomohiro Ohsumi/Bloomberg

Ford Motor Co. (F:US)’s market value is reaching levels last seen in 1999, putting the company closer to its historical peak than the world’s biggest carmaker, Toyota (7203) Motor Corp.

For much of yesterday, Ford traded at a market capitalization of more than $70 billion, a level it has closed at only three times in the last 14 years, according to data compiled by Bloomberg. That left the second-largest U.S. automaker within about $6 billion of its peak valuation in May 1999. Toyota ended the day $30 billion short of its $254 billion high reached in February 2007.

The higher value investors are placing on Ford followed a 17th-straight quarterly profit that showed progress in Chief Executive Officer Alan Mulally’s plan to extend beyond sales of trucks and sport-utility vehicles in developed markets that used to be the company’s strength. That Ford is on track to beat Toyota back to its all-time valuation also reflects a changed environment in which Detroit is competing with its best line of cars in a generation.

“Not only is Ford challenging their own previous peak and are closer to it than Toyota, but Ford is competing with Toyota the way it wasn’t before,” Kevin Tynan, an auto analyst for Bloomberg Industries in Skillman, New Jersey, said by telephone. “It’s a competitive landscape that Toyota really hasn’t had to deal with in maybe 15 years.”

Bench Confidence

Ford’s gains also demonstrate faith that Mulally, 68, has established a team (F:US) that can excel after his eventual departure. The executive reiterated yesterday the company’s plan for him to remain CEO through at least 2014. Microsoft Corp. (MSFT:US) board members have spoken with Mulally about becoming its next CEO, people with knowledge of the talks have said.

“It’s either going to be now or later, but there’s going to be a leadership change, and we feel pretty confident that the bench he has behind him has the expertise to run the business,” said Michael Razewski, a principal at Douglas C. Lane & Associates, which oversees $3.4 billion including Ford shares.

Ford fell 0.9 percent to $17.60 at the close in New York. The shares ended yesterday at $17.76, the highest closing price in almost 33 months. Ford has climbed 36 percent this year, outpacing the 23 percent gain by the Standard & Poor’s 500 Index. Less than five years ago, Ford closed at a low of $1.26.

At least six analysts have increased their price estimates since yesterday, raising 18 analysts’ average for where the shares will rise to in 12 months to $19.92, according to data compiled by Bloomberg. Among analysts surveyed, Ford has 14 buy ratings, nine holds and one sell.

Overseas Profit

Ford earned a rare quarterly profit from its overseas operations on rising demand for Focus compact cars in China and B-Max vans in Europe, leading the Dearborn, Michigan-based company to boost its outlook for the full year.

Ford raised its forecasts for total company pretax profit and operating margin for 2013 after posting a third-quarter profit, excluding one-time items, of 45 cents a share, beating analysts’ estimates. The company’s automotive sales rose 12 percent to $33.9 billion.

After joining Ford from Boeing Co. in 2006, Mulally turned around Ford’s North American operations by broadening its lineup with more competitive cars. His strategy to develop nearly identical vehicles across global markets now is paving the way for shrinking losses in Europe and steady profit in Asia, a market where Ford was almost absent at its last peak.

‘Completely Different’

“The company is a completely different company,” Chief Financial Officer Bob Shanks, 60, said yesterday by telephone. “In 1999, we were still very much a collection of regional companies. We weren’t known for fuel efficiency or technology. We were largely a North Atlantic company. It’s just so many things that are not the Ford of today.”

Ford’s vehicle deliveries, revenue and market share increased in all four of its regions during the third quarter. Operations outside North America earned about $57 million, the company’s best result on that basis since the second quarter of 2011.

Global automotive operating margin improved to 7 percent, also the best in more than two years. Ford said it expects total company pretax profit and automotive operating margin to be higher than last year, better than previously forecast.

Ford’s improved margin performance “is all explained by the operations outside of North America,” Shanks said yesterday on a conference call with analysts and reporters. “You can see the power and the opportunity that we have as we continue to gain traction.”

Toyota Value

For all the gains Ford is making, investors still place a higher market value on Toyota City, Japan-based Toyota -- by more than three-to-one. Asia’s largest automaker delivered 4.91 million vehicles in this year’s first half, outselling Ford’s 3.18 million.

Toyota faces challenges in some of its most crucial segments. The Camry sedan, which probably will extend its reign as the top-selling U.S. car to 12 years, has a slimmer lead in 2013 as Ford’s Fusion has contributed to market share gains.

General Motors Co. (GM:US) has reworked its Malibu sedan and its Impala won Consumer Reports’ distinction as the best sedan in the market. Chrysler Group LLC plans to introduce a new 200 sedan next year.

“People are still valuing Toyota higher,” said Bloomberg Industries’ Tynan. “The issue is, Ford, GM and even Chrysler are in a different position than they were when Toyota was sort of taking over the world.”

Unfilled Holes

Ford still has holes to fill that could boost its market value toward its May 1999 peak of $76 billion. The company is slated to open nine factories from this year through 2015, including five in China and two in India.

“Ford is on much more solid footing in terms of not only where they are, but in terms of strategic direction,” Joseph Spak, a New York-based analyst for RBC Capital Markets, said yesterday by telephone.

Ford also has more models going global. Its Lincoln luxury brand debuts in China next year and the sporty Mustang will begin sales outside North America. The redesigned Mondeo, as the Fusion is known in overseas markets, will roll out in Europe and was introduced in China in August.

Mulally has passed key management duties, including the leading of Ford’s main weekly meeting of executives, to Chief Operating Officer Mark Fields, 52, solidifying him as the frontrunner to be the next CEO.

Whoever leads Ford next will inherit a company with much of its heavy lifting already done, said Razewski, whose firm began building a position in Ford in mid-2011 and counts Ford and GM among its top five holdings.

“This isn’t necessarily a business that needs to be transformed anymore,” he said of Ford. “It’s a business that needs to be run and operated consistently. You don’t necessarily need that change agent running the business anymore.”

To contact the reporter on this story: Craig Trudell in Dearborn, Michigan at ctrudell1@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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