Ford Motor Co.'s current share price of around $9 is based on optimistic assumptions that could falter as the economy continues its recovery, a Credit Suisse analyst said in a report Thursday.
The market is pricing for 2011 earnings of $1.19 per share, which would imply Ford is making close to the profit margins it saw on vehicles in the late 1990s, when it was cranking out SUVs with margins of $13,000 each, analyst Chris Ceraso said.
"That level of profitability is not repeatable, in our view," Ceraso said.
The market also is assuming a U.S. auto sales rate of 13.5 million vehicles by 2011. U.S. sales this year are expected to fall to around 10.3 million vehicles, their lowest level in nearly three decades.
Ceraso, who remains neutral on Ford with a negative bias, said that even if sales do recover to the level of 13.5 million by 2011, more average expectations on profit would make the stock worth roughly $7.15 per share. Ceraso forecasts earnings of 73 cents per share in 2011.
"With the stock priced for much higher profit levels two years out, we think the stock would be vulnerable to a nearterm hiccup in the selling rate," Ceraso said.
Ceraso said there is a possibility of significant upside, however, if sales and margins vastly improve, in which case the stock could be worth as much as $12.65 per share.
Ford shares rose 19 cents to close at $9.05.