Ford: Opportunity or Mirage?

No. 3 automaker Ford (NYSE: F  ) shifted out of low gear and earned $0.94 in the first quarter, handily beating the mean analyst estimate of $0.44 a share. The stock responded with a 10% pop, but if you annualize the quarter's results, Ford still trades at just four times those forward full-year earnings.

Unfortunately, Ford revised its full-year earnings guidance upward, but just to $1.50 to $1.60 a share. That puts the stock nearer nine to 10 times forward earnings. By comparison, General Motors (NYSE: GM  ) has traded for less than 10 times earnings for most of the last 10 years. So, at current prices, Ford looks fairly valued.

Sales in the latest quarter were $44.7 billion and net income was $2 billion. For Ford, that represents a decent net profit margin of 4.5%, but it's not a level the company expects to maintain throughout 2004. Toyota (NYSE: TM  ) , for perspective, forecasts 6.4% net margins.

For improvement, look to Ford Europe. With sales of $6.5 billion last quarter, the subsidiary produced a pre-tax profit of just $5 million. Then there is Ford's Premier Automotive Group (PAG), hurt by the weak dollar, with $6.8 billion in sales and a pre-tax profit of $20 million. Ouch! Even Hertz, with travel traffic recovering, produced a $7 million pre-tax loss.

On a positive note, Ford Credit has lowered its credit losses and gained $300 million this quarter from better used-car pricing (which impacts leasing profitability). With the strong U.S. economy, it is likely that gains will continue in this area.

Ford, which expects to gain market share in the fourth quarter with the launch of new models, is also entering the hybrid market. After letting the Japanese dominate, Ford is ready to make its push. It's a good thing, too. With gas prices high and oil supplies constantly threatened, the company needs to learn this technology in case its popularity soars.

In summary, Ford is doing better -- far better than DaimlerChrysler (NYSE: DCX  ) , which is having trouble with sales and profitability -- but it's not mustering the margins of a Toyota or Honda (NYSE: HMC  ) . For that to be enough for investors, management's guidance will have to prove conservative.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.