- Goldman comments on Ford (NYSE:F) saying the shares essentially shrugged off news of a massive 21% yoy 4Q production cut, even with most of the cut on high-profit truck platforms. Firm suspects investors have been buying Ford shares now and waiting to ask questions later to avoid missing a GM-style, restructuring-fueled run. But they think risk is now to the downside, with the stock up 33% in a month, firm's estimations that shares are pricing in ambitious cost cutting and asset sales, plus clear evidence fundamentals are worsening.
Goldman thinks risk in Ford shares is now to the downside for 4 reasons:
1) Shares are pricing in a lot. Firm's new 2007 EPS of -$0.05 already includes about $4bn in 2006 and 2007 cost cutting. They think a revised "Way Forward" plan may boost that figure by $1.0bn - $1.5bn (EPS impact of $0.32 - $0.64). Selling Jaguar by year-end 2006 (ambitious) could boost 2007 EPS by another $0.25. That gets us to a potential 2007 EPS of $0.84, which at 9X is $7.56, 5% below the current share price.
2) Upside at Ford from alliances seems dubious. Goldman doubts any alliance materially improves fundamentals for at least 3-4 years. They think scenarios that have GM shunning Ghosn, Bill Ford resigning, and Ghosn stepping down from NisRen to run Ford seem far fetched and are not stable ground for making a Ford "Buy" case.
3) Much of what propelled GM shares YTD - diminished risk of a Delphi strike and a Chapter 11 filing, and a strong truck-lead product cadence - does NOT apply to Ford. In fact, Ford's product cadence is worsening as truck pressures quickly mount.
4) It warrants noting that massive production cuts to key platforms (F-Series, SUVs) evidence a business in secular decline. Further employee cuts and plant closings under a new Way Forward plan do nothing to slow an eroding top line.
Notablecalls: Goldman is not the only bear this morning. F stock is trading down 2% in pre mkt trading. Would have expected a bigger haircut following the Goldman call. But we may still get it it.
Goldman thinks risk in Ford shares is now to the downside for 4 reasons:
1) Shares are pricing in a lot. Firm's new 2007 EPS of -$0.05 already includes about $4bn in 2006 and 2007 cost cutting. They think a revised "Way Forward" plan may boost that figure by $1.0bn - $1.5bn (EPS impact of $0.32 - $0.64). Selling Jaguar by year-end 2006 (ambitious) could boost 2007 EPS by another $0.25. That gets us to a potential 2007 EPS of $0.84, which at 9X is $7.56, 5% below the current share price.
2) Upside at Ford from alliances seems dubious. Goldman doubts any alliance materially improves fundamentals for at least 3-4 years. They think scenarios that have GM shunning Ghosn, Bill Ford resigning, and Ghosn stepping down from NisRen to run Ford seem far fetched and are not stable ground for making a Ford "Buy" case.
3) Much of what propelled GM shares YTD - diminished risk of a Delphi strike and a Chapter 11 filing, and a strong truck-lead product cadence - does NOT apply to Ford. In fact, Ford's product cadence is worsening as truck pressures quickly mount.
4) It warrants noting that massive production cuts to key platforms (F-Series, SUVs) evidence a business in secular decline. Further employee cuts and plant closings under a new Way Forward plan do nothing to slow an eroding top line.
Notablecalls: Goldman is not the only bear this morning. F stock is trading down 2% in pre mkt trading. Would have expected a bigger haircut following the Goldman call. But we may still get it it.
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