Gene Marcial's Inside Wall StreetFord Motor (F) has to be one of the most spectacular recovery acts coming out of the recession. But it's a Rodney Dangerfield company that doesn't get the respect it deserves on Wall Street. For all that it has accomplished so quickly, the automaker should carry a higher stock price, argue some market strategists.

Who would have thought Ford would emerge as one of the most innovative and digitally advanced -- and more important, one of the most profitable -- automakers after being declared almost dead three years ago? In fact, Ford's stock plunged to an all-time low of $1 in 2008. It was hard to believe at the time that it traded as high as $57 in 2000.

But against all odds, Ford managed to recover -- without the benefit of a government bailout -- under the disciplined leadership of President and CEO Alan Mulally. And nearly as miraculously, its depressed stock snapped back, to $14 on Apr. 26, 2010. It has since dropped off, to $11.70 as of June 15, in spite of its solid first-quarter results. Ford also reported better-than-expected sales for the month of May, climbing 23% from May of last year.

A Huge First Quarter

So why buy Ford's stock now, after already rebounding from $1 a share? One reason: Ford's numbers just keep on improving.

First-quarter results included whopping profits of $1.76 billion, or 46 cents a share, versus a loss of $1.79 billion, or 75 cents a share, a year ago. The numbers were before special items, including the sale of its Volvo car unit. First-quarter revenues were also impressive, jumping 15% to $28.1 billion, mainly due to strong sales of new products and the company's improved global automotive operations. Its Ford Credit unit contributed as well to the strong top-line numbers.

The automaker's market share, which drove up to 16% in the first four months of 2010 from 14% a year ago, is expected to continue rising, not only because of the industry's recovery but because of Ford's strong new-car lineup. And analysts also predict earnings will keep moving higher after the first-quarter's solid results.

"We are revising our estimates to reflect better than expected improvement in Ford's earnings," says Joseph C. Amaturo, analyst at Buckingham Research Group, who boosted his 2010 profit forecast to $1.47 from $1.29. For 2011, Amaturo predicts earnings of $2.07 a share. In 2009, Ford earned a meager 3 cents a share. Amaturo's 12-month price target of $18 for Ford is the highest among the analysts who track the automaker. Although 10 of 18 analysts rate the stock a buy, three recommend bailing out and five are neutral.

"One Ford" Is Doing the Job


Ford had been in the red since 2006, so a true historical price-earnings range doesn't exist. But the analyst expects the stock to trade in the range of 9 to 10 times profit estimates as investors become more confident about a more meaningful recovery in 2011.

"We strongly encourage investors to buy shares of Ford, as we believe the company is very well positioned to gain a meaningful market share in a rebounding U.S. light-vehicle market, which should drive earnings higher," says Amaturo. Incremental earnings power should increase, he figures, as factory capacity-utilization rates move up closer to the 80% to 90% range.

Much of Ford's progress has been due to its accelerated program to revamp products under its so-called "One Ford" plan. "One Ford" is "positively impacting" the company's operations, notes Zacks Investment Research. Among the plan's objectives is to shift the company's focus away from trucks and SUVs to smaller and more fuel-efficient cars, to deliver more vehicles from fewer core platforms or locations, and to keep cutting costs, says Zachs, which rates Ford as outperform. In 2009, the One Ford plan already resulted in a profit while Ford renewed 70% of its lineup. The company has planned several new product launches, according to Zacks.

Boosting Production

Among the factors that brought Ford back to profitability in 2009 were favorable net pricing, structural cost reductions and improved results at Ford Credit, which accounted for 8% of revenues in 2009. Financial stability has always been a worry in automaking, but in Ford's case, the company is sufficiently liquid. In the first quarter of 2010, Ford ended with a net debt balance of $9 billion, but contributions from its financial group, proceeds from the Volvo sale and cash from operations are expected to largely erase the net debt by year-end.

"Ford should once again be in a positive position in 2011," says Michael Ward, analyst at Soleil Securities. "The shift in Ford's balance sheet over the next few years adds support to our buy rating," says Ward, who has a 12-month price target of $16 a share.

Renewed demand has led Ford to ramp up both its domestic and overseas production. "The momentum should persist in 2011," notes Jason A. Smith of investment research firm Value Line. He says the stock is a timely investment for year-ahead price performance. The upside in Ford is "substantial," he points out, given where the stock was trading at the start of the decade. "Out to 2013-2015, Ford should generate significant annual earnings advances," says Smith.

Given Americans' seemingly eternal romance with cars, the rebounding auto industry may achieve attractive returns -- and Ford is the one to ride with.

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