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On May 16, we maintained our Neutral recommendation on Ford Motor Co. (F - Analyst Report) based on its higher profits in the first quarter of 2013 and strong performance in North America and Asia Pacific Africa. However, we are concerned about the higher structural costs and economic weakness around the world, particularly in Europe.

Why the Reiteration?

On Apr 24, Ford posted an increase of 4.1% in earnings to $1.6 billion and a 5.1% rise in earnings per share to 41 cents in the first quarter of 2013, beating the Zacks Consensus Estimate by 3 cents.

Revenues improved 10.5% to $35.8 billion, exceeding the Zacks Consensus Estimate of $32.8 billion. The improvement in revenues and earnings was mainly attributable to Ford’s strong performance in North America and Asia Pacific Africa, partially offset by unfavorable exchange rate in South America and uncertainties in Europe.

Following the release of the first-quarter results, the Zacks Consensus Estimate for 2013 increased 0.7% to $1.44 per share. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 declined 1.7% to $1.71 per share. With the Zacks Consensus Estimates for both 2013 and 2014 remaining almost flat, Ford currently carries a Zacks Rank #3 (Hold).

The company is expanding its foothold in the emerging global markets including Argentina, Brazil, China, India and Thailand. Ford expects 70% of its global expansion to be in Asia, primarily China and India. Ford anticipates that these investments will eventually bear fruit with a 50% improvement in sales to 8 million vehicles in 2015. Small car sales, as a percentage of total sales, are expected to go up to 55% by 2020 from the current level of 48%.

Ford continues to focus on hybrid vehicles. The company plans to invest $135 million for its next-generation hybrid-electric vehicles. It expects hybrid sales to improve owing to the new launches and plans to triple production capacity of electrified vehicles by 2013.

However, rising commodity and structural costs for replacing older vehicles with new models are apprehended to mar the company’s results. In addition, pension and health care are some of the major issues concerning the profitability of the company in the current competitive industry.

Other Stocks to Consider

Few stocks that are performing well in the broader industry where Ford operates include Tower International, Inc. (TOWR - Snapshot Report), Visteon Corp. (VC - Snapshot Report) and STRATTEC Security Corp. (STRT - Snapshot Report). All the stocks carry a Zacks Rank #1 (Strong Buy).
 

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