Ford (F) Falls After Strong Q1 Results; Dueling Analysts Argue Earnings Power and Share Price

Despite blow-out results yesterday, shares of the only U.S. automaker that didn't receive a bailout, Ford (NYSE: F), have lagged. Yesterday shares of Ford dropped 6% and today they are down another 4%.

The selling pressure may seem odd to investors since the company posted strong earnings of $0.46 per share, which was nearly 50% above the consensus of $0.31. But with shares of Ford jumping 770% from the March '09 low and 15% since the last quarterly results, this sell-off is simply an old Wall Street "buy the rumor, sell the news" reaction. Under this scenario, investors buy on rumors of better-than-expected profits, and once that news is realized they sell.

Adding to today's downside was a downgrade at Credit Suisse. The firm cut its investment rating on Ford from Neutral to Underperform. In its downgrade Credit Suisse said, "there seem to be a growing list of factors that suggest profitability in subsequent quarters will fail to match what Ford posted in 1Q10." Those factors included rising costs to support global expansion, rising raw material costs, rising incentive costs in the US and Europe, and declining profitability in the finance company.

While investors are giving the Credit Suisse downgrade priority today, other analysts were more positive.

Goldman Sachs raised estimates and their price target on Ford from $15 to $16, and reiterated their Conviction Buy List rating. Like Credit Suisse, Goldman also noted that they don't expect the Q1 earnings run rate to be sustained due to lower production schedules in U.S. and Europe, rising commodity prices, and Ford Credit seeing shrinking benefits from lease residuals. That said, Goldman said they see a sustained upward earnings trajectory from 2010 driven by a continued volume recover in North America, a normalization of the European demand environment, improved capacity utilization, and product costs savings from global platforms. The firm now sees 2010 EPS of $1.34 (from $1.04), 2011 of $1.59 (from $1.38) and 2012 of $1.88 (from $1.70).

So while both the analysts basically see slowing earnings growth, one is arguing that the earnings power is strong enough still to justify a much higher share price. The other, which completely missed the earnings surge, suggests the slowing earnings power limits any share upside.

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