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Varchild2008 (83.83)

Calculating 12 FORD (F) Target Price in Realty-based Terms



December 22, 2009 – Comments (2) | RELATED TICKERS: F

To calculate 12 month target price on a stock you have to first judge the EPS for 2010.
Standard and Poor's says EPS for 2010 for ford is 30 cents a share.

Well... Analysts are predicting 10 cents for Q1.... If you extrapolate no better than that for all 4 quarters that is 40 cent EPS.... Therefore, Standard and Poors numbers are they predict a decline from Q1 expected EPS over the course of 2010.

If we are to predict a FLAT to slightly up approach to 2010 I come up with this....

Q1  10 cents
Q2  12 cents
Q3  16 cents     (take out Cash for Clunkers and I predict a 10 cent EPS adjustment)
Q4  20 cents   (because Q1 of 2008 was 20 cents.)

TOTAL:  58 cent EPS....

Now.... What should the multiple be?  At $9.67 (F) has a forward 16.1 P/E.    Since this is a growing stock and not a declining stock.... I will raise the P/E up slightly to 18 times earnings.

So...18 times .58eps = $10.44

Not a very thrilling 12 month projection??  Of course not.... My prediction here is as conservative as possible... 

Let's increase projections on the multiple to 20 and EPS will be as bullish as I can get while still being realistic:

P/E 20

Q1:  20 cents  (to match Q1 2008)
Q2:  18 cents 
Q3:  22 cents
Q4:  26 cents

This will factor in all the cost cutting in 2009 that FORD has done.... Which should push EPS into the 20s almost every quarter or better... I think we could see a 30 EPS quarter in 2010 but that's being super optimistic given unemployment.

Nonetheless... These overly optimistic numbers are not entirely out of synch with analysts.
The high expectation for Q1 2010 eps is 33 cents.... I am just projecting 20....

And yet... I get an EPS of 86 cents.
20 P/E  times .86  =  $17.20

So....what's my final 12 target price on FORD?   Simple... Take the Optimistic number add it to the pessimistic number and divide by 2.

12 months from now (F) will be trading at:  $13.82.

So roughly $14.00 is very possible.. and guess what?  Analysts came out today on CNBC projecting a 50% increase to (F) share price.   9.00 times 50% = +$4.50 = $13.50....  Pretty darn close to what I calculated and I DID NOT PRE-PLAN this math.

The math I did was just top of my head.... pure coincidence it came out to exactly what analysts are projecting right?   no not really... the historic facts support the projections.

2 Comments – Post Your Own

#1) On December 22, 2009 at 9:08 AM, Jazzenjohn1 (< 20) wrote:

Seems like a pretty good analysis to me.  My own WAG was for $1 per share next year with a p/e of 15-20.  One important thing is that automakers profits go up rapidly after breakeven, so if the sales go to 12-14 million vehicles per year, the $1 per year figure could end up being quite low...

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#2) On December 22, 2009 at 12:10 PM, Varchild2008 (83.83) wrote:

soleil after i posted this has a 13 target price now

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