What's next for Ford?

The carmaker's shares have fallen in recent days as some analysts question Ford's growth potential.

By TheStreet Staff Apr 29, 2010 3:04PM

TheStreetBy Andrea Tse, TheStreet

 

Ford (F) stock tumbled 2.4% on Wednesday as mixed forecasts about the company's upcoming quarters emerged -- despite the company's strong first-quarter results.

 

The reaction has hardly surprised Ford equity analysts.

 

"Ford has had a strong run over past year, so it's not surprising that people have locked in profits," Standard & Poor's analyst Efraim Levy says. "The question is, what will you do for me next?" Craig-Hallum Capital analyst Steve Dyer says "it's natural that people would begin to question how much upside is left."

Excluding items, Ford on Tuesday posted first-quarter earnings of 46 cents a share, exceeding the 31-cent average forecast of analysts surveyed by Thomson Reuters.

 

Bing: More on Ford

 

The next day, Credit Suisse (CS) downgraded Ford to “underperform” from “neutral.”

 

"We do not think this level of profitability is sustainable," analyst Christopher Ceraso wrote in an investor note. He foresees "profit headwinds on the horizon," citing "rising structural costs, to support global expansion; rising raw material costs; rising incentive costs in the US and Europe; and declining profitability in the finance company."

 

Some Ford analysts say the automakers' future results may not be as strong because the company has taken on some "very significant product launches,” which can be costly, Edmunds analyst Michelle Krebs says.

 

Ford is releasing new Focus and Fiesta models, which requires the company to retool factories. Krebs expects the return on investment to be high for these "very promising launches."

 

"Product launches are expensive, but Ford has been flawless in its recent product launches," she says. "While they've been expensive, they've done them well. For example, Ford has been doing a lot of premarketing for the new Ford Fiesta, and has been taking orders for it for a while already.”

 

Ford has kept inventory in line with demand. According to Krebs, Ford vehicles took 51 days to sell during the first quarter, compared to as many as 80 days in past quarters.

 

Krebs says Ford’s potential challenges aren’t insurmountable, but its debt may become a concern.  

 

CNW Marketing Research's Art Spinella is also excited about the new Ford Focus and Fiesta. He says they represent improvements from previous models.  

 

"Based on our six-month after-purchase survey, the recommendations [to friends and family] for those vehicles are so far and away compared to anything that they've had for years,” Spinella says.

 

Spinella says Ford has succeeded in attracting younger customers, specifically those under 40. The company has lured them through social networks, such as Facebook, and by offering them new technology and promotions.

 

When promoting its new Ford Taurus, the company touted its Sync voice-controlled entertainment system, for example. This strategy appeals to consumers for which buying cars is not higher on their priority list by tapping into the stuff they really want, Spinella says.

 

The last time an automaker cashed in on this strategy was Toyota (TM), back in the eighties. The automaker had tapped into the "feel good attitude" consumers coveted back then, Spinella said.

 

Whether Ford will have enough inventory to accommodate an upswing in demand has been a concern, Edmunds' Krebs said.

 

S&P's Levy sees more improvement ahead for Ford. The company and industry should benefit from increased sales in the US and globally for several years, he says.

 

“We believe Ford has learned the lesson to give profits precedence over market share,” Levy says.

 

Related Articles

 

Toyota recalls: Are Ford and Honda just as bad?

 

Toyota set to rebound, Japan investor says

 

Why you should buy Ford

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