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.
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.