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This Could Mean Big Profits for Ford

Despite some headwinds – more on those in a bit – it's looking like February will end up being another strong month for U.S. auto sales.

Analyst Jesse Toprak at sees February's sales of "light vehicles" – cars, pickups, and SUVs – coming in 5.7% higher than year-ago numbers.

That's a solid gain, though it would be more subdued than the results we've seen over the last several months.

But the news could be considerably brighter for the Detroit automakers, particularly Ford (NYSE: F  ) .

Is a big gain for Ford in store?
While we'll have to wait until official numbers are released on Friday to be sure, there are hints that a good result for the Blue Oval could be on the way.

TrueCar forecasts an 11.9% year-over-year sales increase for Ford in February, well ahead of the market average. That would be a solid follow-up to the terrific 22% gain posted by the Blue Oval last month. And with Toprak pointing to "the unusual strength of the full size truck segment in February" as a key market driver, that could spell particularly good news for Ford, for a few reasons.

First, as the longtime segment leader, Ford and its flagship F-Series pickup line are well-positioned to reap the lion's share of any gains in the segment. Second, with its high-margin pickups being the biggest driver of Ford's profits, gains in that end of the market will have an outsized effect on Ford's bottom line.

Falling incentives could fatten Ford's margins
That effect could be magnified a bit further in February, as TrueCar sees Ford's per-vehicle spending on "incentives" falling 4.3% over year-ago levels. Incentives, those "cash back" or cheap-financing deals that are often heavily advertised, are a tool for automakers to tweak pricing to meet market conditions for certain models, or in certain areas of the country.

Incentives are part of the auto business, especially when it comes to selling pickups. But in the past, they've been profit eroders for the Detroit automakers, which too often resorted to discounts to move products that weren't as competitive as they should have been.

As its product quality has improved markedly over the last few years, Ford has made an effort to rein in its spending on incentives. That has proven easier in some segments than others, as (for instance) pickup sales are still to some extent driven by who will offer the best "deal."

That's one reason why Ford still spends more on incentives than most of its rivals, though it spends less than Detroit counterparts General Motors (NYSE: GM  ) and Chrysler. That lowered spending is part of why Ford's North American division has recently sported some of the fattest margins in the business. And as those incentives continue to fall – as they may have in February – Ford's per-vehicle profit, and overall profit, could incrementally increase.

Assuming these predictions pan out, that will all be very good news for Ford shareholders.

The upshot: A good quarter could be under way for the Blue Oval
Ford still has big challenges elsewhere, of course. Its plan to transform its money-losing European division will take a couple of years to bear fruit, and its aggressive expansion efforts in Asia won't pay off big until later in the decade.

Both of those efforts are solidly on course and likely to boost the company's profits in a few years, which is why I feel so strongly that Ford stock is still a buy right now. But the Blue Oval's profits in the meantime will be heavily dependent on its fortunes in the U.S. market, and in particular the fortunes of the F-Series pickup line.

We'll know more on Friday, but if these sales numbers pan out, we could be looking at another nice quarter in progress for Ford.

Ford has been performing incredibly well as a company over the past few years -- it's making good vehicles, is consistently profitable, recently reinstated its dividend, and has done a remarkable job paying down its debt. The stock has recently moved up, and it appears investors have started to notice what Ford is doing right. Does this create an incredible buying opportunity, or are there hidden risks with the stock that investors need to know about? To answer that, one of our top equity analysts has compiled a premium research report with in-depth analysis on whether Ford is a buy right now, and why. Simply click here to get instant access to this premium report.

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