shares were rising Wednesday following Tuesday afternoon's credit upgrade as investors digested the positive implications of leaving a junk bond rating in the dust.
Soon after the opening, shares were trading at $10.41, up 22 cents. While the
to investment grade by Moody's surprised no one, the symbolism of Ford's reclaiming its blue oval trademark, which it had hocked, was compelling.
"That an auto company can be upgraded to investment grade in today's choppy macro backdrop only supports our view that 'new auto' fundamentals have indeed been established since the 2008-09 downturn," wrote Citigroup auto analyst Itay Michaeli, in a report issued Wednesday. Michaeli has a target price of $15 for Ford, his top pick.
Among the positive implications from the upgrade, Michaeli wrote, are these: Ford can release collateral and "now possesses a largely unencumbered balance sheet," and Ford now has "greater long-term financial and funding flexibility, particularly at Ford Motor Credit." Also, the upgrade is an important vote of confidence: "Remember that credit ratings are meant to last through an economic cycle," Michaeli wrote. Long-term, he noted, the upgrade could lead to more shareholder-friendly cash deployment, although nothing imminent is expected.
On a conference call with reporters late Tuesday, Ford Chief Financial Officer Bob Shanks said the company will see a reduction in its borrowing rate and its bonds can be included in institutional indices, meaning broader participation by bond buyers.
On Wednesday, traders also had to consider that Ford derives 25% of its global revenue from troubled Europe, which perhaps weighed on shares.
However, in other positive news for the auto industry, Moody's also commented Tuesday on
rating, reaffirming a Ba1 and a positive outlook.
"GM's credit quality continues to improve and the company remains on track to regain an investment grade credit rating over the course of the next 12 months," said Bruce Clark, Moody's lead auto analyst, in a prepared statement.
This means that some of the excitement around Ford's reclaiming its symbol could eventually be duplicated at GM, but with a slightly different narrative about a company that was revived in bankruptcy court under the guidance of the Obama administration. Of course, unlike the Ford story, the GM story always seems to bring out the haters who cannot accept that government has a role to play in building a strong U.S. economy.
Also Wednesday, UBS analyst Colin Langan boosted his outlook for 2012 U.S. auto sales to 14.5 million units from 13.6 million units.
"Improving leading indicators, particularly the recent improvement in University of Michigan new car buying conditions, supports our more bullish outlook," Langan wrote. He noted, however, that fleet buying, warm weather, higher gas prices and inventory restocking pulled some demand forward, which could result in a lower sales cadence later in the year. Langan has buys on Ford and GM.
-- Written by Ted Reed in Charlotte, N.C.
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