Moody's Lifts Ford Outlook

Moody's Investors Service has improved its rating on Ford Motor (F - Analyst Report), triggered by intensive restructuring in the company. The agency raised Ford's corporate family rating by two notches to Caa1, though seven steps below investment grade. The agency has also revealed its wish to raise Ford's finance arm – Ford Motor Credit’s senior unsecured rating, now Caa1. 

The agency commented that Ford has successfully overcome the period of worst downturn in the industry by establishing a sustainable cost structure. Its ratings upgrade will now affect about $25 billion of debt at the company. 

Ford, the only Detroit 3 survivor from bankruptcy in 2009, reported a net income of $2.3 billion or 69 cents per share, after adjusting for special items, for the second quarter of the year. This was well above the Zacks Consensus Estimate loss of 55 cents per share and a net loss of $3.88 per share in the prior year quarter. 

In the quarter, Ford was well on the track to reduce its Automotive debt obligations by $10.1 billion, which will save more than $500 million a year in interest expense. Automotive structural cost shrunk $1.8 billion in the quarter, including $1.2 billion in North America. 

Ford targeted to reduce Automotive structural costs by $4 billion in 2009 as drafted in its business plan last year. Overall, the company reduced Automotive structural costs by $3.6 billion in the first half of the year. 

Further, the U.S. Government's "Cash for Clunkers" incentive program has boosted Ford’s sales in the recent months. The company has announced raising production targets due to the demand for its fuel-efficient vehicles generated by the program.

In August, the company revealed a 17% rise in sales to 181,826 cars and light trucks. Two models – Focus and Escape SUV – ranked fourth and tenth in the Cash for Clunkers program top-10 buy list, respectively – spurred the company’s sales. 

We continue to recommend the shares of Ford as Neutral with a target price of $8.00.

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