Seaport Global Initiates Ford At Buy, Will Be Aggressive Buyers When Dividend Yield Approaches 5%

Seaport Global started coverage of Ford Motor Company F with a Buy rating and $20 price target and said they would become even more aggressive buyers of the stock when the dividend yield approaches 5 percent.

The price target of $20 represents a potential upside of 64 percent over Monday's close.

"We believe that Ford is well positioned to generate record levels of profitability. We believe Ford's improved cost position, de-risked balance sheet and ability to profitably endure a downturn will eventually result in an expanded multiple," analyst Michael Ward wrote in a note.

On the fundamentals side, "Ford's breakeven level in North America has been cut in half, European operations have returned to profitability, self-funded joint ventures in China provide $1.5 billion of income."

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Further, the Financial Services Group contributes close to $2 billion annually in pretax profit, while Ford's automotive segment ended June with $14 billion of surplus cash.

"We expect positive operating cash flow of about $7 billion annually in 2016 and 2017, despite an increase in spending for global product programs. The surplus cash, in our view, will largely be returned to shareholders," Ward said.

In January, Ford announced that in addition to the normal quarterly dividend of $0.15 per share it would pay a supplemental dividend of $0.25 per share to shareholders, in line with the objective to pay out 40-50 percent of earnings in the form of dividends to shareholders.

This suggests a payment from 2016 earnings of between $0.75 and $0.95 per share. The midpoint of the range implies a special payment in the first quarter of 2017 of $0.20 per share.

For 2016, Ward expects EPS of $1.90 on revenue of $138.5 billion and 2017 EPS of $2 on revenue of $139.4 billion.