(Ford, bull-case, bear-case scenario story updated with analyst view on Ford common stock, credit facility, term loan, senior notes, 6.5% trust-preferred securities and Ford Motor Credit Company.)

NEW YORK (

TheStreet

) -- In a promising sign of economic recovery, large, publicly-traded companies are hiring this year, with some looking for more entry-level workers this year compared with previous years. But offsetting this ray of light and improving economic indicators of late is a disappointing set of numbers that came out Thursday.

On Thursday, the markets were slumping after demoralizing regional manufacturing data and a surprising rise in initial weekly jobless claims were reported. What does this mean for automaker companies, like

Ford

(F) - Get Report

, whose performance is so deeply tied to economic strength and consumer spending?

Read on, for bull case and bear case views of the stock.

Mercury Milan

Some analysts are worried that Ford remains a risky stock with too much debt, and have doubts about whether the company's goal of scaling back on brands, starting with Mercury, and focusing on core ones, as

GM

has, will work. Ford, to these investors, is far from invincible to the vulnerabilities of the economy.

But that hasn't stopped Ford optimists from sticking with the stock. "You have to do what traders always seem to do with Ford, no matter where the economic statistics bear out, and that's to take a look, long term," Marek Fuchs,

TheStreet's

media critic said in a recent report.

Ford Fiesta

Indeed, Ford, which never filed for bankruptcy and didn't take any bailout funds when its peers were sinking into the depths of despair, has generated an enormous amount of goodwill in America. Also worth noting is that the Ford brand now has the highest initial quality among all non-luxury brands, according to J.D. Power's initial quality study.

In a research note, Standard & Poor's analyst Efraim Levy, who has a hold opinion on shares on Ford stock, wrote that Ford's 22% increase in vehicle shipments in May, year-over-year, signals retail market-share gains. Levy is also predicting greater business demand for Ford's more profitable truck and utilities vehicles, and urges investors to keep an eye on important drivers of future gains -- including new products like the Fiesta. Rounding out Levy's view of a positive month for Ford is the automaker's plans to increase second-quarter and third-quarter production.

Read on for the bull case and bear case scenarios for Ford stock. And don't forget to take our poll at the bottom of the story...

Next>

Bull Case Highlighted in Morningstar Research Report:

Ford recently had the fewest "things gone wrong" in the entire industry, according to an RDA Group market research study.

Bear Case Highlighted in Morningstar Research Report:

The auto industry is very cyclical, and Detroit automakers have been losing U.S. market share to foreign automakers for years.

Bull Case Highlighted in Morningstar Research Report:

The revamped Focus and Taurus show Ford can make quality, fuel-efficient vehicles to compete with Toyota and Honda.

Bear Case Highlighted in Morningstar Research Report:

Profitability will continue to be hindered by unions, which traditionally have wanted their share of the pie. The non-unionized import automakers in the U.S. do not have this problem.

Bull Case Highlighted in Morningstar Research Report:

Ford's free cash flow generation is expected to significantly improve over the coming years.

Bear Cases Highlighted in Morningstar Research Report:

Stricter fuel economy regulations will make cars more expensive to build and distribute, and these costs would be passed on to consumers.

Ford has major debt maturities in November 2013 and December 2013. In the meantime, shareholders are likely to be diluted.

Goldman Sachs' Stock Rating:

Conviction List Buy with a price target of $15.

Goldman Sachs Research Report Analysis:

While Ford will see some increased fixed costs from capital expenditure, marketing, engineering and overtime manufacturing, the company does not intend to add significantly to payrolls -- their largest fixed cost bucket -- for some time, positioning them for further leverage as volumes recover.

Ford's backlog of launches in North America, Europe and Asia will help sustain positive pricing, as should industry-wide discipline on incentives if utilization continues to improve as expected; lower overall inventories and improved dealer product allocations are also critical factors that are likely to help sustain hard won price increases.

Ford expects 70% of its vehicles to be on common global platforms by 2012. Scale and reduced complexity also extend to the supplier count which they plan to reduce materially from 1,700 at the end of 2009.

Ford Motor Credit Company is benefiting from low funding costs, improved credit quality, and a tailwind from lease residuals.

Citi's Stock Rating:

TST Recommends

Sell/High Risk with a price target of $10.

Citi Research Report Analysis:

Considering Mercury's share erosion over the years combined with its minor role in Ford's new product plans, a wind-down would come as little surprise. While shutting down brands can often take years and prove costly, the long-term benefits from dealer consolidation, overhead costs and branding can pay off.

Ford's improved cash flow may be inspiring management to pursue new initiatives. On the other hand, considering Ford's positive momentum, Citi would think that confirming a brand wind-down at this juncture could risk eroding consumer perceptions of Ford, since consumers might still associate such wind-downs with automaker distress.

Mercury accounted for 5.8% and 5.6% of Ford's 2009 and year-to-date U.S. sales. The challenge in any wind-down is to recoup lost share from the wound-down brand or brands with remaining brands. A look back at GM's experience suggests that share losses for the affected brand can occur quickly once an automaker confirms a wind-down, and the remaining brands may only recoup a fraction of the loss.

Standard & Poor's Rating Outlook for Ford

: Positive

Standard & Poor's Analysis:

Standard & Poor's could raise the rating if, among other things, the gradual improvement in light-vehicle sales continues in most global markets and Ford's prospects for generating free cash flow and profits in its auto manufacturing business continue to solidify.

For example, S&P could raise Ford's rating if the agency believed that its global auto cash generation in 2010 would be positive and improve further in 2011. For example, $3 billion in the company's auto operating cash flow would equal about 10% of its current unadjusted auto debt.

Other positive rating considerations would be if Ford can sustain its pretax auto profit margin in North America in the mid-single-digit percentage area or higher and further demonstrate an ability to cope successfully with the evolving competitive structure of the global auto industry. Such developments could cause S&P to reassess Ford's business and/or financial risk profiles, leading to an upgrade.

S&P could revise the outlook to stable if adverse competitive developments -- for example, overproduction, excess inventory, increased incentives, or unfavorable shifts in customer demand -- reduced the prospects for profitable and cash-positive results in 2010.

Fitch Ratings Outlook for Ford:

Positive for both Ford and Ford Credit.

Fitch Ratings Analysis:

The positive outlook reflects Fitch's expectation that Ford's credit profile will continue to strengthen as the global economy recovers and as the company leverages its increasingly competitive product portfolio and improved cost position to increase production and unit sales.

Coupled with Ford's solid price performance, margins are expected to grow over the medium term, driving stronger levels of free cash flow. This, along with Ford's strong liquidity position, will allow the company to begin the process of de-levering its balance sheet. With better access to the credit markets, Ford Credit's financial flexibility is increasing, resulting in a greater ability to support Ford's auto sales with competitive customer financing, while also generating additional cash that will be sent via dividend to the parent.

Despite the much improved outlook, Ford continues to face a number of challenges, including rising raw materials costs, ongoing global industry overcapacity and, more recently, heavy price incentives in the U.S. market driven by

Toyota's

(TM) - Get Report

aggressive push to support its market share. Over the longer term, increasingly stringent emissions regulations, as well as a host of legislative and regulatory risks promulgated by the U.S. and international governments, are expected to increase vehicle development and production costs, limiting margin expansion.

Moody's outlook for Ford:

Stable for both Ford and Ford Credit.

Moody's Analysis:

The stable outlook reflects Ford's ability to adequately contend with the risks and challenges it may face. These risks include a slowdown in European auto demand that could be exacerbated by the fallout associated with the debt crisis in Greece, a possible escalation in the use of incentives in the US, or a slowdown in the pace of the U.S. recovery. Ford's ability to contend with these potential challenges is supported by operational strengths that are sustainable and by a strong liquidity position.

Ford Credit's stable rating outlook mirrors the Ford rating outlook, in recognition of the business and ownership connections between the two firms. Also, the outlook reflects Moody's expectation that Ford Credit's prospects for improving asset quality and earnings should strengthen as economic recovery progresses. Moody's notes that for Ford Credit to sustain the one-notch rating differential with Ford, it must continue to demonstrate fundamental characteristics that merit the higher credit grade. In this respect, Moody's believes that Ford Credit's reliance on confidence-sensitive wholesale funding is a constraint to its stand-alone profile.

Furthermore, Moody's expects that Ford Credit will eventually increase its leverage, as its confidence in improved capital market access strengthens. A material increase in Ford Credit's leverage profile could also limit the firm's potential for future ratings upgrade, in relation to any further upgrade of Ford's ratings.

CRT Capital's Stock Rating:

Reiterating sell recommendation on Ford's common stock while increasing price target to $9.75.

Reiterating fair value recommendation on Ford's revolving credit facility, term loan, senior notes and 6.5% trust preferred securities.

Downgrading recommendation on Ford Motor Credit Company's (FMCC) senior notes from buy to fair value.

CRT Capital Research Report Analysis:

Ford's shares are down about 20% from their most recent peak of $14.46 a share on April 26, but remain about 15% above CRT's revised price target.

CRT highlights that its sell recommendation is driven by what appears to be a relatively full valuation of Ford's common shares, rather than a negative view of Ford's fundamental business prospects. In fact, CRT thinks its valuation continues to reflect a material increase in Ford's earnings and cash flow over the next three years, which is driven by, among other things an increase in global light vehicle production volumes; an increase in Ford market share and the cost benefits of platform communization, which largely offset a variety of cost headwinds, particularly those created by tighter emission requirements and an unfavorable shift in foreign currency exchange rates.

At the same time, CRT continues to believe that the company's current valuation will become increasingly vulnerable as its earnings momentum slows. Its estimates suggest that Ford's earnings momentum is likely to slow in the second half due to some combination of: lower Ford Motor Credit earnings, higher incentive spending, higher material and structural costs, an unfavorable shift in currency exchange rates and tougher prior-year comparisons.

Still, despite the sell-off in Ford's shares in recent weeks, CRT continues to believe that the company's shares are trading at the high end of their historical range and a premium to the shares of the companies that CRT finds most comparable.

Next Page: our poll question on your Ford stock outlook.....

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TheStreet

has to say.....

-- Reported by Andrea Tse in New York

Dan Fitzpatrick Driving Ford's Chart - Upside Ahead?

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