Ford Places a Bet on Europe
DETROIT (TheStreet) -- Perhaps investors should take a little bit longer view of the future of Europe. That's what Ford (F) is doing.
On Monday, the automaker began volume vehicle production at a manufacturing plant in Craiova, Romania, where it has already spent $650 million on production upgrades. Ford also confirmed it will begin production of a second engine at the site, where its investment will total about $875 million.
"There's still an expectation that we will get (beyond) the crisis in Europe and the auto industry's global growth will continue," said S&P Capital IQ analyst Efraim Levy. "If you can gain market share and do it profitably, you can grow, even in Europe.
"This is not a bet on all of Europe," Levy cautioned. "It is a bet on parts of Europe."
IHS Automotive analyst Rebecca Lindland said that "Europe is in free fall, but it is not going to be in free fall forever." In the meantime, she said, Ford will benefit from lower cost production at Craiova. "Romania diversifies production and allows them to build at lower cost," she said.
Ford is not the only major U.S. company that sees growth prospects in Europe. Last week, on the FedEx (FDX) earnings call, Dave Bronczek, president and CEO of FedEx Express, declared: "Europe is very profitable. We are opening up one station per week in Europe; very successful."
Still, in contrast to U.S. auto sales, European auto sales have slumped this year. Through May, sales in the top 22 European markets were down 8.1% and Ford sales fell 9.1%. Ford is the second leading European automaker with an 8.3% share, behind Volkswagen's 12.5% share. Year to date, Ford has a 16% share in Great Britain, its top European market, and a 7% share in Germany, its No. 2 market.
In a report issued Monday, UBS analyst Colin Langan reiterated a buy on Ford, with a target price of $16, and said the company's strengths include not only the likelihood of increasing market share in the U.S. but also a series of global product launches including the Ranger and the B-Max compact multi-purpose vehicle in Europe. The B-Max is the first vehicle to be built at Craiova.
"Rising sales and share in Ford's most profitable market (the U.S.) is a key catalyst for the shares in the second half," Langan wrote. "Outside the US, Ford also has a strong product cadence. Ford is launching the Ranger and B-Max in Europe, the Ranger and Ecosport in South America, and the Focus, Ecosport, and Kuga in China."