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Ford Must Avoid Road Hazards to Reach $30

Stocks in this article: F MSFT

NEW YORK ( TheStreet) -- There was a point earlier this year when the Street was completely in awe about what Alan Mulally has done to turn around the fortunes of Ford (F), which, until his arrival, had struggled to execute.

Impressively, in only the first seven months of the year, Ford had already surpassed its entire cash total for 2012. This (among other things) not only propelled Mulally to the top of everyone's candidacy for CEO of the year, but some have even suggested he should replace Steve Ballmer as CEO of Microsoft (MSFT).

Unfortunately, though, while Ford has been -- without a doubt -- the model of what can happen when vision meets strong execution, investors have grown frustrated about the lack of movement in the share price. Although the stock closed Tuesday at $17.60 and is sitting near its 52-week high, shares have gone nowhere for more than four months.

Now with third-quarter results due out Thursday, during which the company is expected to post a 7.5% year-over-year earnings decline, these shares seem miles away from $20. The Street will be looking for earnings per share of 37 cents, which is a 3-cent decline from the 40 cents per share the company posted a year ago.

Some of this pessimism stems from the fact that even though Ford has been consistently profitable over the past eight quarters, there's been an average of 25% profit decline over the past four quarters. The good news here is that consensus EPS estimates have risen by 2 cents over the past three months. So there are still analysts that believe Ford will fare much better.

Revenue, meanwhile, is expected to grow 6% year over year to $34.18 billion, surpassing the year-ago total of $32.17 billion. Given that Ford grew revenue by 18% year over year in the July quarter, the Street seems less optimistic that Ford can continue its growth trend. But the 6% projected revenue growth is 2% lower than what Ford has averaged over the past four quarters.

In fact, Ford broadly exceeded every meaningful metric in the July quarter, which I believed should have propelled the stock north of $20. To the extent management can avoid some "road hazards" in Europe and China when it reports its results, the stock may drive by $20 before the end of the year. The company's earnings estimates will weigh heavily on how fast the stock gets there.

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