Junk Bonds Maybe, But Ford's Stock Still Looks Good To These Analysts

Ford Motor Company's (NYSE:F) bond rating might be in the junk yard, but the company and its stock still have plenty of horsepower, sell-side analysts said Tuesday, continuing to recommend buying the car maker’s shares.

Moody’s Investors Services downgraded Ford’s rating on Monday from Baa3 to Ba1, a non-investment grade rating, citing “considerable operating and marketing challenges,” for the company as it pursues what could be a long restructuring plan in an industry downturn.

Credit Suisse and Bank of America Merrill Lynch, however, remained bullish on the automaker.

The Analysts

Credit Suisse analyst Dan Levy kept an Outperform rating on Ford, with a $12 price target.

Bank of America analyst John Murphy reiterated a Buy rating with a $13 target price.

The Theses

The downgrade headline admittedly is bad, both analysts noted, and investors agreed, selling off the stock and sending it down 3% on Tuesday.

But Ford still has plenty of cash ($23 billion) on its balance sheet, still has an investment grade rating from two others services, S&P and Fitch Ratings, and it’s making progress in its global redesign, they said.

“For now, Moody’s downgrade doesn’t change the Ford story,” Levy wrote in a note. “We think the core focus at Ford remains the path to profit recovery, which we continue to believe remains intact.”

Dividend Safe

Murphy agreed with Moody’s that the macroeconomic backdrop — softening car sales in Europe and Asia — is tough but said that’s already priced into the stock. Murphy also said Ford’s dividend should be safe for the foreseeable future, which should boost the stock. Also, the near-term product cycle remains robust, especially in North America.

“We believe Ford’s self-help turnaround should start to get more credit among investors, while improved execution and communication may also allow Ford’s multiple to recover, although the downgrade news was somewhat disappointing,” Murphy wrote in a note.