Look What Stock Is Up 36% in Less Than Month: Ford

Posted by: David Kiley on August 16, 2006

What is fueling the spike in Ford Motor Co.’s share price? Since it closed at $6.06 on July 21, shares of the struggling automaker are up 36% based on today’s close on the New York Stock Exchange where it finished at $8.26.

Two things have changes since then. Ford announced that it will accelerate its “Way Forward” restructuring plan by Sept. 18. Second, a few analaysts have taken off their sell ratings on the stock.

But 36%?

The answer seems to be in mass realization that Ford, even with its struggles in the headlines, was just too cheap at the price of a ham and cheese sandwich. Ford brand, plus Lincoln-Mercury, plus Volvo, plus Jaguar, plus Land Rover, plus Aston Martin, plus Ford Motor Credit…..all that for just $6.00 and change?

Merrill Lynch puts 2006 EPS estimate at 25 cents a share down from an earlier estimate of 35 cents as losses posted at Ford’s Premier Automotive Group (PAG) in 2Q will likely persist through the remainder of the year. The Jaguar brand, notes Merrill’s John Murphy, appears to be the biggest drag and aggregate losses at PAG will be larger in 2006 than in 2005.

The looming problem for Ford in 2007 is a truck pricing war touched off by brand new pickups by GM and Toyota, which will erode the profit margins of Ford F-Series trucks, which have long been carrying the company. That will create a possible cash burn as Ford has to eat into its cash hoard to pay for incentives and operating costs as revenues and profits are hit. Oh…and Ford revised its second quarter earnings to be twice as bad as originally reported.

Ford is expected to announce faster and deeper cost cust next month, and maybe even hint at such moves as selling off Jaguar and possibly even the Ford family reducing its control over the voting shares of the company. Even with that in mind, Ford has said the earliest it figures its auto operations can turn a profit is 2008. That’s two years away, and even that target has loads of doubters.

It doesn’t sound like a recipe for a 36% share spike in less than four weeks. But, like I said, maybe it was just too cheap and speculators couldnt resist buying into all those brands for so little money.

Reader Comments

solomonrex

August 17, 2006 11:24 AM

Well, you should mention the renewed competition for the Mustang, as well, but overall, you're right about their prospects. I think part of the spike is just speculation on a merger, and Jim Cramer's occasional touting on his show (he has specifically said that this stock is too cheap multiple times).

I think there is a lot to like about their business, their European business is still very strong. They still have a credit arm, and that profit should improve in the next few years. They have some pretty good products, too: the Fusion is good, the Euro Focus, new AUS Falcon, they have hybrid, cvt and e85 technologies and will hopefully utilize them better in the future (need E85 f150, CVT focus and small Land Rover, hybrid volvos would probably make sense).

The new Lincoln had surprisingly strong sales. I think they have fans, but they are starved for product. They would be in a better position if they were more aggressive. They may not have enough money to compete. They bungled the last Explorer and ran the Taurus into the ground with fleet sales, yet they have the ability to execute when they try. The Euro Focus, Fusion, Mustang, Edge, Volvo C30, LR2 are all good products. But they aren't marketed enough (or won't be), and they aren't risking anything by leaving the Euro Focus overseas while gas prices increase and competitors multiply.

They may need a merger to get some life into this company. The legacy costs are strangling their turnaround efforts.

Chances are, they still lose, you know? They can't change perceptions overnight, and the perception is, Honda and Toyota justify their huge prices, and Hyundai is the budget winner. Ford is becoming an afterthought. But if all they had was the European business and trucks in the U.S., I think that's easily a $10 stock. That's all Daimler Chrysler is, after all, and eventually Ford will get lucky with a 300 the way that Chrysler did.

Herault

August 21, 2006 12:22 PM

FORD will bounce back as always particularly once they have disposed of JAGUAR. Even here in Britain it is considered a extinct species because BMW can outsmart them at any level. Perhaps Bill Ford should also take a back seat as the company needs to plot a strategy that can give TOYOTA a nasty shock. Something has to be done besides closing down plants and surrendering market share. MUSTANG proved that FORD can drive all the way to the top. Volkswagen has re-discovered its will to survive and prosper. FORD needs to do the same.

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