Ford Analyst Looks Past $20 to $24 a Share

DETROIT ( TheStreet) -- Will Ford ( F) shares reach $20? Apparently, this question is now old news.

In a report issued Friday, Bank of America-Merrill Lynch analyst John Murphy raised his target price to $24. Shortly before midday, the shares were trading at $16.75, up 6 cents. Obviously, getting to $20, a level Ford shares have not seen since 2001, would represent an important breakout, one that is anticipated by a variety of analysts.

In his report, Murphy said Ford shares should continue to outperform for a variety of reasons including strong management, solid results, an improving balance sheet, strong products and the cyclical recovery in auto sales.

Murphy raised his fourth quarter estimate to 48 cents, his 2011 estimate to $2.40 and his 2012 estimate to $2.55. His new price objective is based on a price/earnings multiple of 10 times earnings in 2011. The consensus estimates for analysts surveyed by Thomson Reuters are 48 cents in the fourth quarter and $2.10 in 2011.

"Our current estimates imply that Ford will be comfortably net cash positive in 2011 and Ford Motor Credit Company remains significantly over capitalized, which should drive higher value for shareholders," Murphy wrote. "We believe Ford is entering the sweet spot of its product cadence in model years 2011-2014.

It is difficult to measure the short-term success of a management team in the automotive industry, as so much is dependent upon the economic cycle," he continued. "However, we believe Alan Mulally has led Ford through what is likely the worst of the downturn, and has positioned the company for success as volumes recover."

In a second report, Murphy forecasts light vehicle sales of 15 million in 2011, among the highest estimates in the industry, where 2010 sales are generally expected to total about 11.5 million, up from 10.4 million in 2009. Auto sales rose 17% in November.

Murphy notes that for two consecutive months, the seasonally adjusted annual rate has been 12.3 million vehicles. "We believe that the cyclical recovery is still being underestimated and undervalued by the market, and that there is still near-term upside in many of the auto stocks," he said.

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The cyclical trend should also benefit GM , but Murphy has not rated the largest U.S. automaker. Standard & Poor's has a hold rating on GM , which traded at $33.93 midday Thursday, down 52 cents.

One sign of automotive demand is that used vehicle prices have reached all-time highs. This "indicates that demand for travel utility is being fulfilled by the substitute product," Murphy wrote. "This is arguably a function of not just increased demand, but also a lower supply of used vehicles" because fewer people are selling their used cars.

On Thursday, Ford said it will invest $600 million to re-tool its Louisville assembly plant, making it the company's "most-flexible, high-volume plant in the world." Construction will begin in mid-December. When the plant re-opens late in 2011, it will require an additional 1,800 employees, who will work on building the next-generation Escape for North America.

Total staffing will be 2,900 workers on two shifts, up from one shift today. Louisville had been building the Ford Explorer SUV, a task that will move to the Chicago assembly plant.

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed