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Market Update

Ford's Future Outside of Europe Very Bright

Impressive North American sales in the third quarter underscore Ford's potential, and shares continue to look undervalued, says Morningstar's David Whiston.

Mentioned:

 Ford Motor Company (F) reported third-quarter results Tuesday morning that far surpassed consensus expectations. We see the excellent performance in North America as evidence that our investment thesis of a recovering United States market driving earnings is still in place. We are leaving our fair value estimate unchanged.

Ford posted record third-quarter consolidated and automotive pretax profit with earnings per diluted share excluding special items of $0.40. Consensus was for EPS of $0.30 and revenue of $30.9 billion. Third-quarter revenue declined 3% from the year-ago period to $32.1 billion. The earnings were again almost entirely driven by North America. Ford North America posted what we consider outstanding results with an operating margin of 12% compared with 8.6% a year earlier. It should be noted that the year-ago quarter included a $350 million commodity hedging charge and we calculate 2011's third-quarter North American operating margin to be about 10.6% excluding this charge. For this year's third quarter, Ford incurred a $100 million gain on commodity hedging; excluding this gain, we calculate North American operating margin as 11.4% rather than 12%. Gains and losses from commodity hedging are not recorded as special items.

David Whiston does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.