Barclays analyst sticks with Ford $20 price target

DETROIT (AP) -- A Barclays Capital analyst is sticking to his rating and 12-month price target for Ford Motor Co. despite concerns about weak fourth-quarter results and the prospect of a hit to net income from tax accounting changes later this year. Analyst Brian Johnson wrote in a note to investors that he is keeping his 1-Overweight rating for Ford and a $20 price target for the stock. 1-Overweight means the stock is expected to outperform the total returns in the auto sector over the next year. THE OPINION: Ford's fourth-quarter net earnings of $190 million were 79 percent lower than the same quarter of 2009 and fell far short of Wall Street estimates. Excluding charges for debt reduction and shedding the Mercury brand, Ford made 30 cents per share in the quarter, below the 48 cents analysts expected. Much of the drop was blamed on $1 billion in higher costs for the quarter from starting production and marketing for several new models. But Johnson estimates that half the costs were seasonal and are unlikely to occur in the first quarter of this year, although they will recur during this year's fourth quarter as new products are launched. Also, about $220 million came from one-time warranty and recall costs, Johnson wrote. Johnson also noted that Ford said in regulatory filings that accounting changes will bring a large one-time net income gain but also will raise its tax rate later this year. As Ford piled up losses last decade, it carried forward roughly $23.4 billion of deferred tax assets it had built up, with hopes of using them to cut its taxes once it started making money again. For accounting purposes, it established a tax valuation allowance to offset some of the assets, Johnson wrote. The allowance was worth $15.7 billion at the end of last year. Later this year, at least part of that $15.7 billion could be shifted to net income since the company can start using the deferred tax assets to avoid paying taxes on the $6.6 billion Ford made last year. The move will increase the company's tax rate to 35 percent and cause a one-time hit against net income, Johnson wrote. Ford said in its filing with the Securities and Exchange Commission that the change could take place in the second half of this year. But Johnson estimated that Ford can shelter up to $47 billion in U.S. income. The accounting change should have no impact on the company's value or its cash tax payments, Johnson wrote. "We continue to expect Ford not to pay cash taxes in the U.S. until later in the decade," he wrote. He also increased his total U.S. auto sales forecast for this year from 13 million to 13.5 million vehicles and said that Ford is likely to increase production in the second quarter and for the full year. Ford will get its share of the higher sales, boosting 2011 earnings, Johnson wrote. THE STOCK: Just before Ford's earnings announcement in January, the stock hit a five-year high of $18.79 after falling to as low as $1.43 in 2008, when the future of Ford and its Detroit rivals was uncertain. Published: Tue, Mar 8, 2011