Monday, July 26, 2010

Ford (NYSE:F): EPS ~$2 in 2010-2012 looks possible, Street high target from Merrill

Ford (NYSE:F) is getting some fairly positive commentary from several tier-1 firms this morning:

Note the co reported Q2 results on Friday.

- Merrill Lynch/BAC is raising their target on Ford to $20 from $18 while reiterating their Buy rating:

As a result of Ford’s strong 2Q results, we are raising our EPS estimates in 2010e from $1.45 to $1.95, in 2011e from $1.90 to $2.25, and in 2012e from $2.20 to $2.40. This is further supported by a conservative P/E of ~9X our 2011e EPS. We are encouraged by Ford’s continued execution and believe the company is at a positive inflection point

Balance sheet improvement accelerating
Ford's cash generation of $2.6bn in 2Q:10 was better than expected, and the company paid down $7bn of debt in the quarter. 2Q gross cash stood at $21.9bn versus $27.3bn in debt. Our current estimates imply that the company will be net cash positive in 2011, FMCC may be overcapitalized, and as a result shareholders will reap much greater benefits than generally perceived.

Solid 2Q10 results; company outlook slightly improved
Ford reported 2Q EPS from operations of $0.68, better than our estimate of $0.35 and consensus of $0.40. The upside was driven by strength in all segments, particularly North America and Ford Motor Credit . Ford made minor changes to its 2010 outlook, but reiterated key targets of solid profits with positive Automotive cash flow and added the expectation of reaching net cash positive by YE 2011.

- J.P. Morgan is also out positive saying EPS of ~$2 in 2010-2012 looks quite possible:

We raise our 2010e EPS to $2.00 (vs. $1.60 earlier), 2011e EPS $2.00 (vs. $1.60 earlier) and 2012e EPS to $2.10 (vs. $1.85 earlier). Auto profit improvement in 2011 is offset by lower y/y FMCC profits on non-repeat of 2010's sizable lease residual gains. We leave our price target unchanged at $16 but now base it on 2011 and by using a 5x EV/EBITDA multiple (Ford hinted that removal of valuation allowance could happen soon – something which would likely shave ~$0.30 from our published 2011/2012 EPS). Operationally, Ford is clearly showing excellent progress on nearly all fronts, although the sustainability of NA margins from current levels is a concern. Retain Neutral with positive bias.

Notablecalls: Well it looks like people are slowly but surely starting to accept the idea of Ford having $2+ in EPS power.

Chart looks OK & we have Merrill/BAC out with a new Street high tgt of $20.

One to watch to the upside.