Ford’s Plans Don’t Excite Investors

Yesterday, Ford ($F) held an Investor Day presentation. Although the company’s plans are bold and the turnaround is real, investors are still put off by the stock. I like Ford a lot but the stock is down more than 18% on the year.

Management’s investment day tone was “ever more confident,” according to a report Wednesday by J.P. Morgan analyst Himanshu Patel. He has a $20 price target.

UBS analyst Colin Langan wrote Wednesday that “overall, we were pleased with the takeaways from Ford’s analyst day, as management’s mid-decade targets are in line with our model and thus imply our above-consensus view of the company is on track.” Langan has a $22 price target.

The revelation at investor day was that Ford attached specific numbers to its plans, saying it wants worldwide sales of about 8 million vehicles by 2015, up about 50% from 5.3 million vehicles in 2010. The automaker also anticipates 2015 global automotive operating margins to increase the 8% to 9% range, from 6.1% in 2010.

Patel said the expectations imply mid-decade earnings per share of about $3, up from consensus estimates of $1.93 in 2011 and $2.02 in 2012, according to Thomson Reuters. It is here that an explanation for the shares’ lagging performance may lie. Said Patel, “The $3 level effectively implied by management yesterday is likely to keep the stock range-bound near term.

“We have a positive bias on Ford operationally, but also from a stock trading range perspective, but we believe Ford shares, along with the broader US autos groups, is unlikely to regain its shine until near-term U.S. consumer soft patch concerns dissipate,” wrote Patel.

I don’t see why a $3 per share estimate ought to keep Ford range-bound. That seems up in the air, but what’s not up in the air is that Ford is going for a very low earnings multiple. Right now, shares of Ford are going for just 7.11 times this year’s earnings estimate.

Let’s also remember that except for the January earnings debacle, Ford has beaten its earnings pretty soundly for the past few quarters.

Posted by on June 9th, 2011 at 9:44 am


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