Ford Motor Co.
) debt rating was upped to 'BBB-' from 'BB+' by Standard &
Poor's (S&P) Ratings Services. Thus, the rating agency has
increased the credit rating of the automaker to investment-grade
status from below investment grade, or junk status. This means
that Ford has a low risk of debt default, which will help Ford to
lower its borrowing costs.
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Ford had cash and marketable securities of $25.7 billion as of
Jun 30, 2013, an improvement of nearly $2.0 billion from $23.8
billion as of Jun 30, 2012. However, automotive debt rose $1.6
billion to $15.8 billion as of Jun 30, 2013 from $14.2 billion as
of Jun 30, 2012.
The revision in Ford's rating is based on solid performance by
the automaker in North America together with better pension
coverage. In addition, the rating agency believes that Ford is
earnings profits worldwide. While sales are growing in China,
retail market expansion in the Europe should also have a
favorable impact on earnings.
Ford's North America segment recorded 13.7% increase in revenues
to $22.4 billion in the second quarter of 2013 on a 14.5% rise in
wholesale volumes to 823 thousand units. The company benefited
from higher industry sales and healthy full-size pickup sales in
the region, market share gains in East and West Coast markets,
continued discipline in matching production to real demand and a
lean cost structure.
In Apr 2012, Fitch Ratings had raised Ford's credit rating to
investment grade from junk status. Just a month after, Moody's
Investors Service lifted the company's credit rating to
investment grade after seven years.
Ford believes that this improvement in rating will support the
company in delivering the One Ford plan. The automaker plans to
maintain the investment grade for one entire economic cycle.
Meanwhile, S&P also raised its outlook on
General Motors Company
) to positive from stable. This improvement in outlook creates a
possibility of improvement in the credit rating to investment
grade if the company maintains the improvement in its auto
business. However, General Motors carries a junk status since
Ford currently has a Zacks Rank #3 (Hold). Other major automobile
stocks worth considering are
Nissan Motor Co. Ltd.
). Nissan carries a Zacks Rank #1 (Strong Buy) while Volkswagen
is Zacks Rank #2 (Buy) stock.