Is it time to test-drive Ford’s stock?

By Money Matters Editors

The lowdown on Ford (F): Ford said it earned 29 cents per share in Q3, which beat the First Call EPS consensus estimate of a loss of 12 cents per share.

However, Ford said continuing revenue gains in its North American unit would be offset by an expected revenue slide in it European division.

Ford also raised its 2011 guidance from its North American operations to “solidly profitable” on a pre-tax basis, from “breakeven or better.” The change means Ford expects to meet its financial goal of registering a full-year profit in 2011. The First Call FY2009/FY2010 EPS estimates are a loss of $1.35 and a profit of 15 cents. 

Ford has cut costs admirably in the past three years, reducing expenses by about $4.6 billion, including $1 billion in cost cuts in Q3. Nevertheless, Ford still has $26.9 billion in debt, with $1.6 billion maturing during the next 12 months. Ford’s shares closed Monday up 58 cents to $7.58.

Is it time to jump back into Ford’s shares? At this juncture, Money Matters Editors believe the answer is no, for 3 reasons. First, the U.S. consumer demand has not demonstrated that it has ‘legs’ i.e. that a large enough number of adults have the income to buy a new car without a federal income tax rebate.

Second, financing remains an obstacle for many Americans. The liquidity crisis is over, the credit crisis is not. Many, good-credit, potential auto buyers are choosing to postpone their purchases because financing is prohibitive: a 7 percent new car loan is inviting; 12 or 15 percent new car loan is not.

Third, Ford still has not developed that must-have vehicle that young couples crave. In other words, Ford needs to develop a stylish, efficient, durable, versatile vehicle that Americans can’t do without. Until the company does, and until the aforementioned other hurdles disappear, Ford’s shares contain too much risk for the reward.


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Disclosure: Money Matters Editors and staff do not own shares in stocks they review.