Target Price for Ford = $18

Barron’s carries a buy rating on Ford ($F) by Sterne, Agee & Leach.

In 2010, Ford was the fifth-largest vehicle manufacturer in the world, producing 5.0 million units globally and generating $119 billion in revenue. Through its 100% owned subsidiary, Ford Motor Credit, the company generated an additional $8 billion in revenue from vehicle financing.

In 2006, the company initiated a corporate restructuring aimed at operating profitably at lower demand levels. The plan included capacity and headcount reductions, the elimination of noncore divisions, and the acceleration of new products. Ford issued $20 billion of secured debt to fund the actions and was able to work through the industry recession without turning to the courts for protection.

As the industry started to recover in 2009 and into 2010, financial performance improved. Pretax income totaled $8.3 billion in 2010 compared with a loss of $6.8 billion in 2008, and in 2011, the company repaid the remaining portion of the financing needed for the restructuring.

We believe Ford’s cost- and revenue-restructuring actions since 2007 have positioned the company to be a prime beneficiary from improving industry demand on a global basis, producing record financial results over the next few years.

In the near term, concerns in Europe, in our view, continue to weigh on the stock but North American Auto has been operating at near-record levels despite below-trend demand totals. In addition, Ford’s balance-sheet restructuring has been completed, the board reinstated the dividend for common shareholders in December, and expectations for additional cash generation should provide flexibility in the coming years.

We expect earnings per share of $1.60 in 2011, $1.80 in 2012, and $2.20 in 2013. The low end of our targeted multiple ranges applied to 2013 estimated EPS supports our $18 target price.

In our view, the market will more fully value Ford’s financial performance with signs of stability or a pending solution in Europe.

Posted by on December 22nd, 2011 at 12:02 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.