Bear Stearns called a bottom at
on Monday, sending the ailing automaker's shares up nearly 5%.
Bear Stearns auto analyst Peter Nesvold said in a research note that Ford's counterpart in Detroit,
, appears to have exhausted its flow of good news in the short term, leaving Ford poised to stage its long-awaited comeback.
These are tough times for both companies when it comes to their sales and market share, both of which are in decline in the key North American auto market. Meanwhile, soaring gas prices, rising interest rates and signs of weakness in consumer spending provide little hope of a near-term sales turnaround.
GM, however, has led gains in the
Dow Jones Industrial Average
so far in 2006 by posting improved quarterly results, taking steps to reduce its cost structure and entering talks for a potential partnership with
. Ford, meanwhile, hasn't fared as well, recently reporting a much
worse-than-expected loss for the second quarter as it evaluates ways to speed up a restructuring plan.
Now, Nesvold believes its Ford's turn to benefit from cost-cutting moves. He expects the restructuring to give momentum to the company's depleted stock price and steal the spotlight from GM, which may have run out of cost-cutting ammunition with which to woo Wall Street. On these grounds, Nesvold upgraded Ford to an outperform rating from underperform, and he downgraded GM to underperform from peer perform.
"To put it politely, this trade is not for the risk averse," wrote Nesvold, noting that "we're inclined to be in and out of the trade early."
Such language does little to inspire confidence that anything is likely to change fundamentally for either automaker in the back half of this year. Rather, the report suggests that a shift in trading momentum is at hand as GM's turnaround efforts slow and Ford's get ramped up.
Ford is trading up on bad news while
GM has started paring gains," Nesvold wrote. "We believe investors are starting to conclude that GM's written the restructuring playbook for Ford. We expect Ford to reemerge in September with a more aggressive turnaround. Given GM's 75% move, we think investors will warm up in a hurry to a restructured Ford."
When Ford reported its disappointing second-quarter results in late July, the company's CEO, Bill Ford, said "external factors" in the auto industry require Ford to accelerate, and possibly overhaul, its turnaround plan, known as "Way Forward." He promised an update on Ford's plans within 60 days.
Ford's comments were widely viewed as a reaction to GM's performance of late. Shares of GM have now rocketed up almost 60% so far this year after the world's largest automaker became the stock market's poster child for disappointment in 2005, when it shed over 48% of its value as its sales and earnings tanked.
Ford's shares dropped 45% last year, albeit more quietly. But rather than stage a recovery in 2006, its stock has continued to lag, up only 3% for the year from its doldrums. It may have lacked the urgency that activist investor Kirk Kerkorian's Tracinda Corp. brought to GM when the firm bought a major stake in the automaker last year and later installed Jerome York on its board.
Since then, GM slashed its dividend payment in half. It agreed to sell off majority stakes in its residential mortgage business and its financing arm, GMAC, to private equity firms to raise cash. It executed a massive employee-buyout plan, and now its CEO, Richard Wagoner, is in talks with Carlos Ghosn, the CEO of Nissan and Renault, about a game-changing partnership.
Ford just got around to cutting its dividend last month. The Ford family controls the company with 40% of the shareholder voting rights, leaving little room for an activist to make much of a splash.
Talk of a deal for GM alliance has died down on Wall Street after the idea was initially greeted by a burst of euphoria and speculation that Wagoner might be getting elbowed aside. GM's shares have slipped almost 6% so far in August as larger economic concerns have begun to catch up again with the industrial bellwether.
"The vast majority of GM's turnaround to date has been cost-driven, whereas product and revenue will now be in focus," Nesvold wrote. "Still, a meaningful portion of
production for the T-900, GM's new line of sport utility vehicles has already phased in, and last week, management acknowledged rising headwinds for sales volumes, production and pricing through
the rest of 2006. Also, we think
Wall Street's consensus estimate for its earnings overlooks the loss of 51% of GMAC's earnings power next year."
GMAC has long been GM's sole profit driver.
On average, analysts are expecting GM to earn $4.91 a share in 2007, up 20% from the $4.08 a share they're expecting for this year, according to Thomson First Call. Meanwhile, analysts expect Ford to record a loss of 10 cents a share in 2007 after losing 13 cents a share this year.
Since both automakers stopped providing their own earnings forecasts last year, analysts' estimates have been wildly divergent and ultimately inaccurate. Meanwhile, proposed changes in the way companies are allowed to account for their pension assets could potentially wipe out all of the shareholder equity at Ford and GM, which could hurt both their stock prices even though it would only be a change on paper.
However, Nesvold estimated that Ford could cut $3 billion to $4 billion from its cost structure with an employee buyout plan that mirrors the one executed at GM earlier this year, along with other measures. That, he said, could boost shares of Ford to $15 for a gain of 94% as investors take a second look at the No. 2 U.S. automaker.
Ford shares recently were up 35 cents, 4.8%, to $7.72; GM shares edged up 17 cents to $30.28.