<
Why Ford Can Double
By MICHAEL SANTOLI
ONE OF THE FAVORITE CLINCHER LINES of lever-aged-buyout proselytizers (remember them, from when credit markets were functioning?) is that under private ownership, companies can operate free of Wall Street's impatiently watchful stare. Often, this is code for saying that private companies are free to shrink a business intelligently when it makes sense to do so.
Alan Mulally, chief executive of Ford Motor (ticker: F), is executing a high-stakes task of strategically shrinking the company in plain sight of the investment world. Hardly anyone is bothering to take notice, but investors should pay closer attention, because the turnaround he and his largely new team is engineering could result in a double or better in Ford's shares, now near a 25-year low at 6.49.
To the extent that the market likes anything these days, it prefers companies that have strong overseas profit growth, benefit from a weaker dollar and have a clear path to better profit margins, all of which apply to Ford.
But the stock, down from above 9 in mid-2007, has few friends on Wall Street. Only three of 13 analysts recommend the stock (four rate it a Sell), and short interest has risen from 150 million shares to 250 million this year.
The reasons are obvious -- so obvious, in fact, that it's hard to see why the stock will remain a slave to them. Consumers are pinched, car sales are down. Yet even with last week's reported double-digit declines in monthly sales, the likely annual industry volume for 2008 is merely trending toward the levels that Ford executives have been assuming for months now.
Sure, Ford Motor Credit auto-loan delinquencies are trending higher, but they remain well within the normal historical band, and the unit makes no home loans.
All the focus on monthly sales and the recession vigil are diverting investors' sights from the very attractive big picture. Namely, Ford quality is up; it has billions in excess liquidity; a new-model rollout is approaching; the days of making cars just to keep the factories open are gone, and management is selling secondary assets and unifying the global organization.
Consumer Reports rated Ford's portfolio by far the highest quality of the Detroit Three this year, and better than most imports. Warranty expense in 2007 fell $1 billion. Price-per-vehicle rose $1,000, as Ford sent fewer cars into rental fleets. Overall car affordability is high, and the basic replacement cycle will help demand in the near term.
David Markowitz of value-oriented hedge fund SLS Capital, a significant Ford shareholder, estimates that last year's 17-cent loss per share -- far lower than forecasts -- would have been 57 cents in earnings if the forthcoming UAW health-care and wage deals had been in effect. So the base of earnings power upon which the present margin expansion begins is well higher than the Street acknowledges. Without making aggressive assumptions, Markowitz sees Ford earning $1.44 in 2009, more than double the Street's consensus expectation. At recent prices, Ford is trading at about 2.2 times expected 2009 cash flow, less than half its historical cash-flow multiple.
A consumer recession could bite into projected sales and keep the news flow negative. But at prices below 7, it seems that Ford shares are offering that ever-elusive margin of safety that value investors covet.
THE STOCK MARKET HAS BOUGHT ITSELF SOME time, room and psychological cover with its recent rally off the March lows and its refusal to seize on perfectly good excuses last week to buckle, including Friday's employment decline.
That doesn't mean there's much edge in predicting whether the next few-percent move will be up or down, but the tape has earned back the benefit of the doubt for the bulls for the very near term. The bullishness will be tested before long as earnings season arrives. Published expectations of a jaunty rebound in profits in the second half may seem implausible. But add back the $100 billion in financial write-offs from last year and let $100 oil flow through energy-sector estimates, and the numbers appear somewhat less delusional.
The market is hinting -- tentatively -- that it has discounted a ton of the credit misery and has priced in the recessionary headwinds. We'll soon know how good a job it's done in handicapping the tough profit picture.
By MICHAEL SANTOLI
ONE OF THE FAVORITE CLINCHER LINES of lever-aged-buyout proselytizers (remember them, from when credit markets were functioning?) is that under private ownership, companies can operate free of Wall Street's impatiently watchful stare. Often, this is code for saying that private companies are free to shrink a business intelligently when it makes sense to do so.
Alan Mulally, chief executive of Ford Motor (ticker: F), is executing a high-stakes task of strategically shrinking the company in plain sight of the investment world. Hardly anyone is bothering to take notice, but investors should pay closer attention, because the turnaround he and his largely new team is engineering could result in a double or better in Ford's shares, now near a 25-year low at 6.49.
To the extent that the market likes anything these days, it prefers companies that have strong overseas profit growth, benefit from a weaker dollar and have a clear path to better profit margins, all of which apply to Ford.
But the stock, down from above 9 in mid-2007, has few friends on Wall Street. Only three of 13 analysts recommend the stock (four rate it a Sell), and short interest has risen from 150 million shares to 250 million this year.
The reasons are obvious -- so obvious, in fact, that it's hard to see why the stock will remain a slave to them. Consumers are pinched, car sales are down. Yet even with last week's reported double-digit declines in monthly sales, the likely annual industry volume for 2008 is merely trending toward the levels that Ford executives have been assuming for months now.
Sure, Ford Motor Credit auto-loan delinquencies are trending higher, but they remain well within the normal historical band, and the unit makes no home loans.
All the focus on monthly sales and the recession vigil are diverting investors' sights from the very attractive big picture. Namely, Ford quality is up; it has billions in excess liquidity; a new-model rollout is approaching; the days of making cars just to keep the factories open are gone, and management is selling secondary assets and unifying the global organization.
Consumer Reports rated Ford's portfolio by far the highest quality of the Detroit Three this year, and better than most imports. Warranty expense in 2007 fell $1 billion. Price-per-vehicle rose $1,000, as Ford sent fewer cars into rental fleets. Overall car affordability is high, and the basic replacement cycle will help demand in the near term.
David Markowitz of value-oriented hedge fund SLS Capital, a significant Ford shareholder, estimates that last year's 17-cent loss per share -- far lower than forecasts -- would have been 57 cents in earnings if the forthcoming UAW health-care and wage deals had been in effect. So the base of earnings power upon which the present margin expansion begins is well higher than the Street acknowledges. Without making aggressive assumptions, Markowitz sees Ford earning $1.44 in 2009, more than double the Street's consensus expectation. At recent prices, Ford is trading at about 2.2 times expected 2009 cash flow, less than half its historical cash-flow multiple.
A consumer recession could bite into projected sales and keep the news flow negative. But at prices below 7, it seems that Ford shares are offering that ever-elusive margin of safety that value investors covet.
THE STOCK MARKET HAS BOUGHT ITSELF SOME time, room and psychological cover with its recent rally off the March lows and its refusal to seize on perfectly good excuses last week to buckle, including Friday's employment decline.
That doesn't mean there's much edge in predicting whether the next few-percent move will be up or down, but the tape has earned back the benefit of the doubt for the bulls for the very near term. The bullishness will be tested before long as earnings season arrives. Published expectations of a jaunty rebound in profits in the second half may seem implausible. But add back the $100 billion in financial write-offs from last year and let $100 oil flow through energy-sector estimates, and the numbers appear somewhat less delusional.
The market is hinting -- tentatively -- that it has discounted a ton of the credit misery and has priced in the recessionary headwinds. We'll soon know how good a job it's done in handicapping the tough profit picture.
My input on Ford is that the company is heading the right direction and if u are looking for a risky & long term play ! ford is the one , buy below 6 a share and sell in a few years !
Mad Man
Posts
No comments:
Post a Comment