Ford II
Let’s talk about Ford Motor Co. (Ticker: F) and the announcement today by the UAW Trust Fund to sell 362 million warrants that give buyers of each warrant the right to buy a share of Ford stock at $9.20 / share. The “minimum” price of each warrant is $3.50. (LA Times 3/29/2010 Article: UAW trust fund to sell rights to rising Ford stock)
Let’s warm up our engines and do some “Ford Math” –
There are 3.7 billion shares of Ford outstanding (issued by the company), and 3.22 billion of these shares essentially available to the public (this includes institutional investors). (Info courtesy of Finance.yahoo) So dividing 3.22 billion by 362 million confirms what the LA Times article wrote concerning the UAW selling 11% (approx.) of the company.
Let’s keep going with our “Ford Math” warm-up and now look at Ford’s earnings. Last quarter, Ford surprised everyone with great earnings of 0.43 / share. The quarter before that was another surprise of 0.26 / share. Let’s say that Ford earns something in-between these two numbers for each of the next two quarters, perhaps 0.32 / share and 0.35 / share in each quarter. That puts their annual earnings at $1.36 / share. These are really good earnings, considering that demand for cars and trucks in the US is way down. The US automotive market is no longer 16 million cars and trucks, but more like 11 million.
Today Ford’s stock closed at $13.57/ share. Dividing $13.57 by $1.36 places Ford currently at a price earnings ratio (P/E) of 9.97. The SP 500 is currently selling at an approximate P/E of 17. That means that Ford Motor Co. at its closing price today, in the face of today’s announcement, is priced at a discount of 41% to the market. So if an investor chooses to by Ford Motor Stock right now, the investor is perhaps paying 41% less for Ford than for another comparable stock in the market or an SP-500 ETF. A few weeks ago we calculated that Deere and Co. (Ticker: DE) had a P/E post earnings of approx. 25. In which case, Ford Motor Co. is selling at a 60% discount to Deere and Co. (John Deere Tractors+).
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