Credit Suisse: China An Opportunity, Margins A Drawback For Ford

Benzinga

Ford (NYSE: F) shares were bid higher in Thursday’s extended hours session after Credit Suisse started coverage of the stock with a Neutral rating and $18 price target.

Catalysts

One of the key catalysts highlighted in the report is China. Analyst Dan Galves thinks the country can provide significant growth, but is unsure about Ford’s plans to get there. “We see potential for another $1bn of earnings beyond that, but that would take another two to three plants, which is not realistic for several years.”

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The report goes on to discuss North American margins. Ford’s drop in margins from 10.2 percent in 2013 to the 8-9 percent range in 2014 is viewed by most on Wall Street as temporary. However, Credit Suisse does not think this is the case as pricing deteriorates and F150 production is constrained. According to Galves, margins could be in the 6.5 percent to seven percent range in the long run.

Valuation

“Bullish views on Ford are based on $2 of EPS in the next couple years and a 10x multiple. While it’s certainly possible, our view is that circumstances outside NA need to be relatively flawless, which rarely happens.”

The $18 price target is based on 4.2 times EV/EBITDA and 9.6 times PE.

Shares of Ford were last trading at $17.45, up 0.2 percent in Thursday’s pre-market trading.

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