so much for this SSB upgrade:
Ford Motor Company Par 0.01(F)#
Rating: 1M
As of 06/15/2001
Last Changed 06/11/2001
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Salomon Smith Barney ~ June 11, 2001
Ford (F)#
F: Price Beaten Up Enough - Upgraded To Buy 1M (Buy, Medium Risk)
Mkt Cap: $45,480.0 mil.
June 11, 2001 SUMMARY
* We are upgrading Ford (F) to a Buy 1M rating from
AUTO Neutral 3M primarily reflecting price. We believe the
MANUFACTURERS negative news surrounding the Firestone tire replacement
Michael P. Ward, program has knocked the stock down to attractive levels.
CFA * At current levels, Ford's yield exceeds 5%, or a 43%
premium to the 90-day t-bill yield. Over the last 15
years, Ford's yield has reached those levels only three
John B. Strauss, times, and in each case, it proved to be a good buying
CFA opportunity.
* U.S. retail car & light truck sales have now declined
in 8 consecutive months, by our estimates, the downturn
Catherine L. could last 24 months. In the past, the ideal time to buy
Lukas auto related stocks has been 9-12 months before the
trough. The recent price decline, in our opinion, has
triggered a catalyst to wait.
* Our 12-month target of $36 per share assumes that the
market will discount a $3.00 per share earnings estimate
over the next 12 months (12 X $3.00), about 50% above
current trading levels.
FUNDAMENTALS
P/E (12/01E) 21.8x
P/E (12/02E) 10.7x
TEV/EBITDA (12/01E) 7.4x
TEV/EBITDA (12/02E) NA
Book Value/Share (12/01E) NA
Price/Book Value NA
Dividend/Yield (12/01E) $1.20/5.0%
Revenue (12/01E) $133,750.0 mil.
Proj. Long-Term EPS Growth 5%
ROE (12/01E) NA
Long-Term Debt to Capital(a) NA
F is in the S&P 500(R) Index.
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (6/8/01) $24.00 Current Rating 1M
52-Week Range $50.00-$22.13 Prior Rating 3M
Shares Outstanding(a) 1,895.0 mil. Current Target Price $36.00
Convertible No Previous Target Price $28.00
EARNINGS PER SHARE
FY ends 1Q 2Q 3Q 4Q Full Year
12/00A Actual $0.90A $1.18A $0.50A $0.57A $3.26A
12/01E Current $0.60A ($0.30)E NA NA $1.10E
Previous $0.60A $0.79E NA NA $2.15E
12/02E Current NA NA NA NA $2.25E
Previous NA NA NA NA NA
12/03E Current NA NA NA NA NA
Previous NA NA NA NA NA
First Call Consensus EPS: 12/01E $1.27; 12/02E $2.75; 12/03E NA
OPINION
Are we nuts?: We don't think so. The data that Ford has used to support its
move to replace the 13 million tires seems to be compelling. The fact that
stands out, in our opinion, is the data from the 1995-97 period when Ford
shipped an exact number of vehicles with Firestone and Goodyear tires.
During that three year period, there were about 1,200 incidents of tire
separation with the Firestone tires and only two incidents with the Goodyear
tires. The data, we believe, will at some point put the issue to rest.
Similar to the GM problems with the side-saddled gas tanks in the early-90s,
consumer will return if the problem is believed to be resolved. As a result,
we view the negative news as a catalyst.
Yield support: at current trading levels, Ford's yield exceeds 5% ($1.20
annual dividend / $24 per share). We often compare dividend yields against
the 90-day t-bill yield. At current levels, Ford's yield is at a 43% premium
to the 90-day t-bill (5.0%/3.5%-1). There have only been three other
occasions in the last 15 years when such levels were reached, all three times
were during the 1990-92 industry recession. In the six months following the
spike in the yield ratio, Ford's stock beat the market by an average of 35%.
The cycle: we believe the U.S. sales cycle is by far the most important
variable as it relates to the auto stocks. U.S. retail car and light truck
sales have declined in each of the last eight months, and we believe sales
will continue to fall for the next 12-16 months. However, in the past the
stocks have tended to bottom out 9-12 months before the sales cycle.
Historical patterns suggest that the ideal timing to get more aggressive with
the auto group would be in the fourth quarter. Giving the recent sell off of
Ford's stock surrounding the Firestone tire replacement program we believe
the price is attractive enough to justify being early.
VALUATION
Our current earnings estimate for calendar 2001 is $1.10 per share, which
includes the impact of the Firestone tire replacement charge. Our initial
estimate for calendar year 2002 is earnings of $2.25 per share. Ford's need
to halt production to free up tire capacity should result in more attractive
US dealer inventory levels. North American production for the third quarter
will remain conservative (our current forecast is off 12% from the year ago
period), which will further improve dealer inventory levels. As a result,
Ford could be in a position, heading into calendar year 2002, where they may
have to increase dealer inventory levels which could provide better than
expected volumes throughout the year. In addition, their European
restructuring program should also begin to improve the performance overseas.
Over the next twelve months, the market could begin to give Ford credit for
earnings of $3.00 per share or more. Our price target of $36 per share
assumes the market will give Ford a 12 multiple on a $3.00 earnings
expectations over the next twelve months.
COMPANY DESCRIPTION
Ford Motor Company is the world's largest producer of trucks and the second-
largest producer of cars and trucks combined. The company and its
subsidiaries also engage in other businesses, including manufacturing
automotive components and systems and financing and renting vehicles and
equipment. Ford's business is divided into two business sectors: Automotive
and Financial Services. In 2000 Ford's revenues totaled to $170 billion. Of
this amount, 83% was generated by Automotive business segment and 17% by
Financial Services. Geographically, 68% of automotive revenue was generated
from the United States, 20% from Europe, and 12% from the rest of the world. |
