UPDATE 2-RESEARCH ALERT-Citigroup downgrades GM, Ford to sell

mercoledì 8 ottobre 2008 17:59

 (Recasts, adds details)
 Oct 8 (Reuters) - Citigroup downgraded Ford Motor Co (F.N: Quotazione)
and General Motors Corp (GM.N: Quotazione) to "sell" from "hold," citing
deteriorating global credit conditions and "unappealing"
valuations, sending the companies' shares down sharply.
 The credit crunch is likely to further stress original
equipment manufacturers balance sheets and 2010
recoveryexpectations, analyst Itay Michaeli said, adding that
better relative value existed in auto supplier stocks that
haveunderperformed OEMs and carry less liquidity and/or
dilution risk.
 The analyst slashed his price targets to $2.50 from $5.50
on Ford, and to $6 from $12 on GM on lower earnings forecasts.
 U.S. vehicle sales dropped 26 percent in September, the
first monthly sales total below 1 million since 1993, weighed
down by a weak economy and tight lending conditions. Sales are
down 13 percent through the first nine months of the year.
 The drop in demand has been particularly hard for the
Detroit Three. GM's sales are down 18 percent so far this year.
Ford's sales are off 17 percent and Chrysler sales are off 25
 "For GM, we continue to view liquidity to be adequate
through year-end 2008, but the margin of error beyond that has
increased, and we continue to view mid-2009 as the deadline for
GM to raise substantial external liquidity," Michaeli said.
 Ford's liquidity position appears adequate through 2009,
but it too is vulnerable to a deeper downturn caused by credit
constriction, a decline in its revolver borrowing base or
supplier distress, the analyst said.
 Shares of Ford fell to a 25-year low of $2.77, while GM
shares slipped to $6.42, their lowest since 1952.
 The analyst reduced his U.S. lightvehicle sales estimates
to 13.8 million units from 14 million for 2008 and to 13.7
million from 14.4 million units for 2009, on a weaker U.S.
macro outlook.
 North American light vehicle production is expected to be
at 12.9 million units in both 2008 and 2009, down from his
prior forecast of 13.2 million and 13.6 million units,
respectively, the analyst said.
 An aging vehicle fleet and a higher off lease volume should
help drive demand over the next few years, Michaeli added.
 He said BorgWarner Inc (BWA.N: Quotazione) remained his favorite auto
stock through this downturnwith a strong balance sheet,
appealing value and secular growth prospects.
 Michaeli cut his price targets and 2008 earnings estimates
on the following autos and auto-parts makers:
                               Price Target        2008
Estimates Co Name                           New      Old       
 Old American Axle & Manufacturing     $8.50    $11.00    
 $-2.35 Holdings Inc (AXL.N: Quotazione) Borg Warner Inc (BWA.N: Quotazione)          
$46      $49        $2.77    $2.83 Ford Motor Co (F.N: Quotazione)         
  $2.50    $5.50      $-1.82   $-1.82 General Motors Corp
(GM.N: Quotazione)        $6       $12        $-21.28  $-19.44 Johnson
Controls Inc (JCI.N: Quotazione)      $28      $32        $2.31    $2.33
Lear Corp (LEA.N: Quotazione)                 $9       $11        $2.63   
$2.68 Magna International Inc MGa.TO  $64      $70       
$5.30    $5.69 Tenneco Inc (TEN.N: Quotazione)               $9       $16  
  $1.34    $1.50
 (Reporting by Amulya Nagaraj and Neha Singh in Bangalore;
Editing by Dinesh Nair and Deepak Kannan)