) -- Worried that the
IPO will diminish the value of
Don't be. Not only are Ford shares cruising along,
but history indicates that a company's shares are not disadvantaged when a leading competitor has an IPO.
Standard & Poor's analyst Efraim Levy, who has a buy on Ford, said the success of Ford's products sets the tone for the shares, which are up about 62% this year after rising 334% in 2009. "We see positives for Ford, regardless of whether other automakers return to the publicly traded stock markets," wrote Levy in a September report.
Ultimately, he said, "success comes down to product. We believe Ford has already benefited from its peers' struggles with government bailouts and bankruptcy -- as well as
reputation-tarnishing product recalls -- but, more importantly, from products that were well received by consumers in terms of technology, quality and utility."
It should be noted that while Levy has a buy on Ford, his price target is $16. "The worst may be over for Ford, but some risk to demand remains, and based on historical and peer comparative P/E multiples, our 12-month target price is $16," he wrote in a Nov. 13 report.
Risk to Ford investors is high, Levy said, due to the cyclicality of the auto market, historically weak demand, "intensifying competition, high fixed and legacy costs and a weak albeit improving balance sheet."
For the moment, Ford shares continue to benefit from continuing market share gains by the company as well as a commitment to debt reduction.
Meanwhile, UBS analyst Colin Langan reviewed the sector impact of large IPOs in a July study. "We found that on average, during the three-and-one months preceding an IPO, the main competitor experienced above-market returns, outperforming the S&P 500 by 1.8% and 2.9% respectively," Langan wrote.
Among the past IPOs Langan reviewed was the $5.5 billion
offering in November 1999. In the six preceding months,
shares fell by 22%. In the year following, FedEx shares gained 7%.
The offering was pitched as an e-commerce play, but multiples for UPS and FedEx contracted as the air went out of that bubble, so both stocks were underperforming the S&P 500. Nevertheless, "there is little evidence that investors reallocated their resources from FedEx to invest in UPS," Langan wrote.
In the case of the March 2008
$17.9 billion IPO, shares in
rose 39% in the six months prior and 40% in the three months afterwards. During much of the period, both stocks outperformed the S&P. "There is no clear evidence that MasterCard investors were negatively impacted by Visa's IPO," Langan wrote.
-- Written by Ted Reed in Charlotte, N.C.
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