Health deal could aid Ford most
All eyes may be on General Motors Corp. as talks with the United Auto
Workers drag on, but some on Wall Street are already turning their
attention to crosstown rival Ford Motor Co., where they feel there is
more money to be made.
Ford shares rose to their highest level this month on Monday after an
influential analyst raised his rating for the company's stock, saying
investors were not giving the Dearborn automaker the same benefit of the
doubt in the current contract talks with the UAW that they were GM.
Wall Street's focus has been locked on GM since the UAW declared it the
lead company in this year's pivotal negotiations last Thursday.
Investors expressed their confidence that those talks would lead to a
game-changing deal on retiree health care by sending shares in the
Detroit automaker soaring.
But Ford shares remained largely flat, despite the fact that any deal
reached with GM is likely to be extended to Ford as well.
"We think Ford is more interesting," said Bear Stearn's Peter Nesvold in
a note released early Monday. "While we think GM shares will rally
higher on a preliminary UAW deal, upgrading the stock here seems too
short-term minded. Most of the best news is behind GM -- whether in
terms of step-wise (earnings) improvements, product introductions, or
He added GM may have to raise a significant amount of added capital to
fund the union-controlled trust -- a voluntary employees' beneficiary
association, or VEBA -- that it wants to take responsibility for hourly
retirees' health insurance.
Moreover, GM's retail sales have disappointed Wall Street in recent
months, and the company's inventories are much higher than its competitors.
"Ford looks more appealing, despite overall softening auto sales,"
Nesvold said. "A VEBA means as much, if not more, to Ford than GM, by
our estimates, Ford's cash flow has exceeded expectations in the last
three quarters and Ford has nearly $40 billion of automotive cash, with
additional asset sales still to come."
Ford's planned sale of its British Jaguar and Land Rover brands, plus
the likely sale of its Swedish Volvo brand, could add billions more to
the company's coffers to help fund a VEBA or other restructuring actions.
Bear Stearns upgraded Ford's stock to "outperform" and set a year-end
2008 target price of $10.50 a share.
Ford's shares rose more than 3 percent on the news Monday, closing up 25
cents at $8.28. GM gained $1.01, closing up just under 3 percent at $35.23.
Nesvold is not alone in his sentiments. Several Wall Street analysts
concurred with his take on Ford's stock.
Bradley Rubin of BNP Paribas said the same applies to its bonds as well.
He agreed Ford is, fundamentally, better positioned than GM because of
assets it has to sell and the much smaller number of retirees on its
health insurance rolls.