Ford Analyst Looks Past $20 to $24 a Share
Ted Reed.
In a report issued Friday, Bank of America-Merrill Lynch analyst
John Murphy raised his target price to $24. Shortly before midday,
the shares were trading at $16.75, up 6 cents. Obviously, getting
to $20, a level Ford shares have not seen since 2001, would
represent an important breakout, one that is anticipated by a
variety of analysts.
In his report, Murphy said Ford shares should continue to
outperform for a variety of reasons including strong management,
solid results, an improving balance sheet, strong products and the
cyclical recovery in auto sales.
Murphy raised his fourth quarter estimate to 48 cents, his 2011
estimate to $2.40 and his 2012 estimate to $2.55. His new price
objective is based on a price/earnings multiple of 10 times
earnings in 2011. The consensus estimates for analysts surveyed by
Thomson Reuters are 48 cents in the fourth quarter and $2.10 in
2011.
"Our current estimates imply that Ford will be comfortably net cash
positive in 2011 and Ford Motor Credit Company remains
significantly over capitalized, which should drive higher value for
shareholders," Murphy wrote. "We believe Ford is entering the sweet
spot of its product cadence in model years 2011-2014.
It is difficult to measure the short-term success of a management
team in the automotive industry, as so much is dependent upon the
economic cycle," he continued. "However, we believe Alan Mulally
has led Ford through what is likely the worst of the downturn, and
has positioned the company for success as volumes recover."
In a second report, Murphy forecasts light vehicle sales of 15
million in 2011, among the highest estimates in the industry, where
2010 sales are generally expected to total about 11.5 million, up
from 10.4 million in 2009. Auto sales rose 17% in November.
Murphy notes that for two consecutive months, the seasonally
adjusted annual rate has been 12.3 million vehicles. "We believe
that the cyclical recovery is still being underestimated and
undervalued by the market, and that there is still near-term upside
in many of the auto stocks," he said.
The cyclical trend should also benefit GM, but Murphy has not rated
the largest U.S. automaker. Standard & Poor's has a hold rating
on GM, which traded at $33.93 midday Thursday, down 52 cents.
One sign of automotive demand is that used vehicle prices have
reached all-time highs. This "indicates that demand for travel
utility is being fulfilled by the substitute product," Murphy
wrote. "This is arguably a function of not just increased demand,
but also a lower supply of used vehicles" because fewer people are
selling their used cars.
On Thursday, Ford said it will invest $600 million to re-tool
its Louisville assembly plant, making it the company's
"most-flexible, high-volume plant in the world." Construction will
begin in mid-December. When the plant re-opens late in 2011, it
will require an additional 1,800 employees, who will work on
building the next-generation Escape for North America.
Total staffing will be 2,900 workers on two shifts, up from one
shift today. Louisville had been building the Ford Explorer SUV, a
task that will move to the Chicago assembly plant.
-- Written by Ted Reed in Charlotte, N.C.
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