Analyst Makes The Case That Ford (F) Is Significantly Overvalued

Ford Motors (NYSE: F), the last man standing of the Detroit Big 3, was slapped with a nasty "Sell" rating today with a downside price target of $2. The rating was set by CRT Capital analyst Kirk Ludtke in new coverage of Ford common stock and a host of other Ford securities, including senior notes and senior convertible notes.

Ludtke put a dreaded "Sell" on F's Senior Notes, 4.25% Senior Convertible Notes due 12/15/36, 6.5% Trust Preferred Securities due 1/15/32, and Common Stock. He has a "Fair Value" recommendation on F’s Senior Secured Revolving Credit and Term Loan. He also started coverage on Ford Motor Credit Co. (FMCC) with a "Fair Value" recommendation on its Senior Notes.

Ludtke estimates that Ford's operating activities will consume $18.4 billion in the next three years, suggesting the company will need to raise an additional $7.0 billion in that timeframe in order to maintain an adequate level of liquidity. Ludtke also thinks the company's cash needs in 2011 could increase materially if F needs to pay down a portion of its $10.1 billion Senior Secured Revolving Credit in order to extend the facility beyond its 12/15/11 maturity.

Ludtke said much of the company's cash needs will be met with the recently announced $5.9 billion in secured loans from the Department of Energy. Ludtke also said there are a number of potential sources of additional liquidity for Ford, including: additional DOE loans (F applied for $11B total), foreign governments loans (F applied for $3.2B In Europe), a convertible security.

Ludtke said even though the company's liquidity appears adequate, he is concerned that the Company's leverage may reach unsustainable levels. For example, Ludtke estimates that Ford's total debt will be $40.8 billion at year-end 2010, of which $20.0 billion will be secured. This is in addition to unfunded pension liabilities which were $11.9 billion at year-end 2008.

Ludtke said it seems likely that Ford will need to de-lever its balance sheet by pursuing additional equity and/or debt exchanges.

With Ford's shares trading at $5.71, there is 65% downside to Ludtke's $2 price target.

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