Ford Pick-Up: Salomon Analyst Upgrades the Automaker
Ford
(F) - Get Report
received a boost as
Salomon Smith Barney
analyst Michael Ward upgraded the company's battered stock to buy from neutral on a valuation call.
The upgrade comes at an unlikely time: The automaker is reeling from the crisis over safety issues stemming from the Firestone tires used on its Explorer model, which has led to a massive tire-recall program and congressional hearings. Add to that
The Wall Street Journal's
report this morning that rival
General Motors
(GM) - Get Report
has narrowed the productivity gap with Ford.
Ward, in upgrading the stock, noted that Ford's yield -- the ratio between Ford's dividend and its stock price -- is more than 5%. "At current levels, Ford's yield is at a 43% premium to the 90-day Treasury bill," he wrote to investors. "There have been only three other occasions in the last 15 years when such levels were reached. All three times were during the 1990 to 1992 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 stock climbed 55 cents, or 2.3%, to $24.55 in morning trading.
From Jan. 1 through April 18 -- the day before Ford reported first-quarter earnings dropped 41% from the year ago period -- the stock was up 31.1%. In the seven weeks since, the stock has fallen 21.8%. It closed Friday at $24 a share, a shade above its year-end close of $23.43 and up from the 52-week low of $21.68 it racked up seven months ago.
The fundamental situation is not good for automakers, Ward says. U.S. car and truck sales have declined for eight consecutive months, and Ward sees the possibility of another 16 months of decline ahead. Ward says that the ideal time to snap up auto stocks is 9 to 12 months before the sales situation hits bottom, which would mean that the fourth quarter would be the perfect time. But the Firestone debacle has made Ford's stock so cheap that the analyst said it would be worth getting in really early -- now -- almost a year and a half before the industry's sales might bottom.
Ward said the Firestone issue was similar to GM's problems in the early 1990s, when side-saddled gas tanks had a tendency to explode and leak gas in side collisions. The gas tanks were found on 6.3 million pickup trucks from 1973 to 1987, a crisis on par with the 13 million tires Ford will replace as a result of the tire issues. In the analyst's view, consumers will come back as soon as the problem is seen as fixed.
The tire recall, which costs $3 billion pretax, has led Ford to suspend its share-buyback program.