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Ford at $9: A Second Chance to Buy Alan Mulally’s Crisis Management

Alan Mullaly
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Alan Mullaly

It appears that investors are getting one last chance to bet on the management skills of Ford Motor CEO Alan Mulally.

The opportunity seems an appealing one. Most stock buys, after all, are bets on management, and Mulally is viewed as one of the country’s top CEOs.

He succeeded at Boeing and he has already turned around Ford once. Now, it appears that for an encore he needs to turn around Ford’s operations in Europe, which the automaker said will lose $1 billion this year.

Ford closed Thursday at $8.96, down 1 cent. The last time the shares fell as low as $9 was in December 2009. Year-to-date, Ford shares are down 18 percent, while General Motors is down percent — perhaps because GM investors have not yet priced in Europe’s problems.

Mulally is 67 years old and is often questioned about when he will retire. A typical non-response: He told TheStreet in April that “the best is ahead of us (and) whenever I leave, the Ford team will continue to keep Ford soaring.”

Ford Chairman Bill Ford has said that Mulally can stay as long as he wants.

Mulally could have left at 65 when he and Ford were on top, but he chose to stay. It does not seem likely that he would choose to walk away with Ford in the middle of a winnable battle to turn things around in Europe.

On Sept. 5, 2006, the day Mulally signed on at Ford, the shares closed at $8.39. The Detroit Three, not surprisingly, were viewed as bankruptcy candidates. Ford shares slumped as low as $1.50 in February 2009, then began a recovery.

The shares ended 2009 at $10, up 334 percent. They reached a high of $18.97 in January 2011 before beginning another slide.

The job in Europe is difficult, but on the Ford earnings conference call Wednesday, executives made it clear that they know what has to be done.

“We fully understand what it takes to be profitable,” said Chief Financial Officer Bob Shanks. “It isn’t just a cost story: There are tremendous opportunities available to us on the revenue side. I would go back and look at what we did in North America, which was comprehensive.”

The One Ford formula, of course, includes both raising revenue, partially by introducing new products, as well as cutting costs with tools including global platforms as well as capacity reductions.

Mulally also answered an analyst’s question about why investors have allowed Ford shares to fall to $9.

“It’s in the context of a very tough biz environment,” particularly in Europe, Mulally responded. “We have a tremendous presence and operation in Europe. We have made money there six of the last eight years. But we are seeing very significant deterioration in the economy and the industry. And so I think that is weighing on people’s minds.

“The best thing we can do for value creation is to continue to implement the Ford plan of delivering a viable, exciting, profitably growing company,” Mulally continued. “I think that will be appreciated over time.”

Various analysts continue to maintain “buy” ratings on Ford. S&P Capital IQ analyst Efraim Levy has a “buy.” Goldman Sachs analyst Patrick Archambault has an “attractive” and a $14 price target. Jefferies analyst Peter Nesvold has a “buy” and a $14 price target, although he cautions that “it will take patience.”

“This company is still making money, a lot of money,” Nesvold wrote in a note, following the earnings call. “However, until a definite plan is revealed to stem losses in Europe, investors remain wary. With the stock trading at 3.1 times EBITDA, we think the shares are too cheap to sell.”

—By TheStreet.com’s Ted Reed

Additional News: Ford Recalls Half a Million SUVs for Throttle Issue

Additional Views: Ford’s Europe Problem Not a Problem?

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