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29 Reasons to Be Bullish on Ford Stock

Although Ford faces numerous risks and headwinds, the bullish views on the stock are numerous. Here, we present the upside scenarios of several auto sector analysts.
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(Ford story updated with IBISWorld's bullish market analysis of Ford)
NEW YORK (TheStreet) -- As a recipient of stellar reviews for its latest vehicle models and the only automaker of Detroit's Big Three not to take bailout money from the government during the financial crisis, Ford (F) - Get Ford Motor Company Report has been a favorite of both car owners and investors.

And, of course,

Toyota's

(TM) - Get Toyota Motor Corp. Report

massive recall trouble has only served to further boost Ford's esteemed position.

Recently speaking at the Confederation of British Industry's annual lecture in London, Ford CEO Alan Mulally said he expects a "solid profit" for the company in 2010, as well as positive free cash flow and improved performance as a whole in 2011. With his combination of experience in both business and engineering, Mulally, of course, has been widely credited with turning Ford around. Previously, he was executive vice president of

Boeing

(BA) - Get Boeing Company Report

and CEO of Boeing Commercial Airplanes.

>>Ford Fights for Share in China, India

That said -- although Ford, like its strongest peers, faces risks and headwinds such as strong competitors going public again, its massive debt load, and of course another downturn in the economy; the company was also a bit late in entering the China game -- a variety of industry analysts have been able to provide compelling reasons to be bullish about the stock.

Here then, we present no fewer than 15 reasons to be bullish about Ford along -- along with some caveats ...

Analyst:

Colin Langan, UBS

Bullish Case #1

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-- Ford will benefit, Langan says, from "continued U.S. market share gains with the launches of the Ford Fiesta, Ford Focus and Ford Explorer."

Bullish Case #2

-- "Significant operating leverage associated with the North American market recovery. U.S. auto sales are still below scrappage, typically indicating pent up auto demand in the U.S."

How Much Ford Stock Could Appreciate:

UBS Price Target:

$16

Implied Upside:

Roughly 29%

>>Ford Fights for Share in China, India

Analyst:

Colin Langan, UBS

Bullish Case #3

-- "U.S. scrappage, or vehicles taken off the road, is about 12.5 million to 13 million units," Langan notes. "Sales remain below this level (about 11.2 million year-to-date) and were 10.4 million last year. 2009 was the first year that scrappage exceeded auto sales and it will likely continue in 2010. This trend implies that consumers are taking vehicles out of their driveways, and therefore this trend is not sustainable over time. We believe that normal demand is about 15 million (12.5 million to 13 million in scrappage and 2 million to 2.5 million new drivers each year)."

Bullish Case #4

-- "In 2009, Ford's overall share was 15.3%; however its share in small cars was only 7.9%. The launch of the Ford Fiesta (new compact entry) and Ford Focus (dramatically improved model based on the European Focus) will likely help boost their total share."

Bullish Case #5

-- The "industry pickup truck mix was only 13.3% in 2009, well below the average of 17.8% from 2000 to 2009. Ford has over 30% market share in this segment. Moreover, these are among the most profitable vehicles in Ford's line-up. Consequently, the recovery of pickup truck mix will be a positive for Ford."

Bearish Caveats:

"There are several risks in the second half of the year, including rising commodity costs, a still cautious consumer and seasonally low production" in the second half, Langan says.

>>Ford Fights for Share in China, India

Analyst:

David Silver, Wall Street Strategies

Bullish Case #6

-- "Despite not going through bankruptcy, the company continues to improve its balance sheet and more specifically its debt load," Silver says. "As a sign of how far the company has come, Ford was able to sell $1 billion of five year debt at levels close to that of investment-grade bonds."

Bullish Case #7

-- "Another reason that I am bullish on the company is the momentum that Ford has (yes it is fickle), but the company has vehicles that people want to drive and are really pushing the envelope with respect to technology that are in these vehicles (Sync and MyFord Touch)."

Bullish Case #8

-- "Additionally, Mulally is trying to change the industry and I think he will be successful. In the past, only models with more horsepower or other add-ons received a higher price tag, while now, Mulally is attempting to charge people for the technology to save money on gasoline. A four-cylinder more fuel efficient vehicle will be more expensive than a six-cylinder of the same model."

How Much Ford Stock Could Appreciate:

Wall Street Strategies Price Target:

$16

Implied Upside:

Roughly 29%

Additional Comment:

"I think we could see that price by April of 2011."

>>Ford Fights for Share in China, India

Analyst:

David Silver, Wall Street Strategies

Bullish Case #9

-- "Ford is expected to outperform the Chinese market, and despite having a relatively small market share, that type of growth is always a positive, especially considering the speed at which the Chinese market is expected to continue to grow," Silver says. "The 50% growth that we have seen over the past two years is just not sustainable, so a steady growth in the mid 20% for the next two or three years would be a more accurate expectation for that market."

Bullish Case #10

-- "Despite a relative slowdown in the U.S., Ford continues to be one of the strongest in terms of monthly performers."

Bullish Case #11

-- "The third example is the debt offering. Investors expect the company to be investment grade in the near future."

Bearish Caveats:

"A big risk is the overall economy. We have seen a relative slowdown in the U.S., and if the economy continues to falter, the automakers will be forced to offer more incentives to drive volumes (lower margins). Europe is excepted to see more weakness; however, that is already baked into the numbers (at least my expectations) -- and in fact, Europe has held up better over the past six months than I had expected."

Analyst:

Efraim Levy, Standard & Poor's

Bullish Case #12

-- "There's been greater consumer consideration for Ford. The company benefited from not taking bailout money from the government and from Toyota's troubles and tarnished brand," Levy says.

Bullish Case #13

-- "The world vehicle program is finally happening," Levy says. He explains that Ford's efficiencies from streamlining global production into very similar vehicles have been progressing well -- there has been much headway in economies of scale.

"Mulally has been able to put his vision and input into the culture and the execution," Levy says. He adds that Mulally's experience at Boeing definitely had an impact on his approaches to Ford. The airline industry, Levy explains, sells one product or a core of products worldwide. "You have the 747," for example. "An airplane is tweaked for each customer, but there's a certain core. Ford has a lot of parallels with Boeing" and Mulally applied his lessons in the airline industry to vehicle manufacturing.

Levy says that despite several attempts, Ford's world car never quite succeeded in the past. But "looks like they're actually are going do it." Furthermore, "there won't just be one vehicle. There will be several vehicles tweaked for local consumption -- not just the Fiesta, a couple of vehicles."

Bullish Case #14

-- The international potential of Ford in markets including China and India, especially India. There's already been big sales percentage increases for Ford in those regions, Levy notes.

How Much Ford Stock Could Appreciate:

Standard & Poor's Price Target:

Lifted to $16 from $13 on Oct. 11.

Levy has boosted his opinion on Ford to buy from hold amid his increased U.S. industry forecast, upward adjustments to his third-quarter production and sales forecasts, downward adjustments to his fourth-quarter production and sales forecasts and reductions in expected interest expense as Ford retires debt. Levy also noted in his client report Ford's greater global manufacturing efficiencies and well-controlled incentive spending -- though partly offset by higher commodity costs.

Implied Upside:

Roughly 15.9%

>>Ford Fights for Share in China, India

Analyst:

Efraim Levy, Standard & Poor's

Bullish Case #15

-- Second quarter sales highlights: 20% increase in China, tripled quarterly sales in India, Levy says.

Bullish Case #16

-- Increased consumer consideration for Ford and improved quality perception of brand, Levy says.

Bullish Case #17

-- Increasingly, Levy says, on consumers' list of dealerships to visit

Bearish Caveats:

"Ford has benefited from their peer struggles -- bankruptcies and recalls," Levy says. "But those benefits are moving in the rear view window. With other companies talking about going public again and on more solid footing," there will be more interest in those stronger competitors from consumers.

>>Ford Fights for Share in China, India

Analyst:

Michelle Krebs, Edmunds.com

Bullish Case #18

-- "Automotive turnarounds are built on great products, and Ford has introduced terrific new models, with plenty more in the pipeline," Krebs says. "And Ford has launched its new models almost flawlessly with heavy and innovative marketing and advertising that is resonating with consumers."

Bullish Case #19

-- "The new Fiesta small car, though constrained by some supply (a problem with a key component) and logistical issues (a flooding out of a bridge from Mexico), looks to be off to a decent start."

Bullish Case #20

-- "The upcoming Ford Focus looks very promising in an important growing segment of the market."

Bullish Case #21

-- "The revamped Fusion led to record sales in some months for the midsize sedan. And the Fusion hybrid is among the best in the business. The new Ford Edge, just hitting the market, generated tremendous buzz when introduced at an auto show last year. Similarly, the combined online and real-life introduction of the Ford Explorer caused consideration on Edmunds.com to go through the roof, a positive sign for the reinvented SUV."

Bullish Case #21

-- "The best-selling Ford F-150 remains strong. The revised Ford Mustang is off to a fast start."

Bullish Case #22

-- "Ford also got a lift from not going into bankruptcy and not taking federal bailout funds along with Toyota's woes."

Ford in China:

"Ford was late to the dance in China and because it was late to the dance, it took one of the few partners left, and it wasn't thought at the time to be a great one. However, Ford has largely overcome its tardiness and any partnership issues and has vastly improved its lot in China. It has been helped by the introduction of some of Ford's great global products, most notably the Fiesta."

>>Ford Fights for Share in China, India

Analyst:

Michelle Krebs, Edmunds.com

Bullish Case #23

-- Edmunds data shows that Ford has experienced sales market share fluctuations as its best-selling SUVs declined in popularity, Krebs notes. The same data indicates that now new models are beginning to resonate, returning Ford to second place in U.S. sales even as the Mercury brand is discontinued.

Bullish Case #24

-- Meanwhile, Krebs adds that Edmunds web metrics since Jan. 2007 also shows that Edmunds.com site visitor interest in Ford, Lincoln and Mercury in August 2010 was the highest ever for Ford brand level purchase intent.

Bullish Case #25

-- Krebs notes that the current Ford stock price is a large improvement from where it was not long ago. "See the stock market price -- it was worth the price of a pack of gum less than two years ago." Krebs expects a boost in Ford's credit ratings and ability to reduce its debt.

Bearish Caveats:

"Ford's massive debt load is its greatest risk, though if all goes well -- profit-sales performance continues and credit ratings improve -- that load should be manageable," Krebs says.

Labor is a possible threat, Krebs notes, if the union refuses to give at all.

Krebs notes the always-present threat of "the unforeseen. There could always be an unforeseen incident like the Ford-Firestone, or Toyota recalls."

>>Ford Fights for Share in China, India

Analyst:

Casey Thormahlen, IBISWorld

Bullish Case #26

-- "Ford has great market share momentum, stronger than any U.S. automaker and rivaled only by

Hyundai

(Ford at 16.7% of U.S. sales in 2010, up from 15.1% in 2008; Hyundai at 8% in 2010, up from 5.1% in 2008.)."

Bullish Case #27

-- "Ford is posting impressive revenue gains (30.8% improvement second quarter 2009 to second quarter 2010) and even faster operating income growth (57.2% from second quarter 2009 to second quarter 2010)."

Bullish Case #28

-- "Cost of Goods Sold (COGS) as a share of revenue fell during the last two quarters, indicating better gross margins and increased efficiency."

Analyst:

Casey Thormahlen, IBISWorld

Bullish Case #29

-- "Sustained market share gains (must be compared to other U.S. automakers or from 2008 onward; prior market share numbers are skewed because of much higher truck and SUV sales relative to total vehicle sales)."

Bearish Caveats:

"The big risk to Ford, which is shared with the other U.S. automakers, is a resurgent UAW. Hard-won concessions made during the recession could be reversed, erasing a lot of Ford's progress in profitability."

-- Written by Andrea Tse in New York.

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>>Ford Fights for Share in China, India

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