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S&P Keeps Sell on Ford


Ford Motor (F): Reiterates 2 STARS (sell)

Late Monday, Ford announced a pact to sell its Hertz rental car unit to an investment group for about $15 billion, including the assumption of Hertz debt. We expect the transaction to be completed prior to 2005 at year end, subject to standard regulatory approvals. The price is higher than we had expected and we think the transaction will ameliorate the company's liquidity needs somewhat, and could temporarily boost Ford's share price. However, we believe that Ford faces fundamental operation challenges in its core auto business. We expect the company to continue to lose market share and see margin pressure.

Best Buy (BBY): Reiterates 3 STARS (hold)

Analyst: Michael Souers; Amy Glynn, CFA

August quarter earnings per share of 37 cents vs. 27 cents is a penny above our estimate. Sales rose 10%, on a comparable-store sales gain of 3.5%, reflecting continued strength in large ticket items such as MP3 players, notebook computers and flat-panel TVs. Gross margins increased 130 basis points, driven by the expansion of computer services and improved pricing and sourcing activities. Based on current trends, we expect the critical holiday selling season to be highly promotional. We are lowering our fiscal year 2006 (ending February) earnings per share estimate to $2.13 from $2.16. Our 12-month target price remains $50.

AK Steel Holding (AKS): Reiterates 3 STARS (hold)

Analyst: Leo Larkin

Shares of AK Steel declined over 6% yesterday following the company's announcement that it expects an operating loss per ton of $20 in the third quarter vs. its previous guidance of an operating profit per ton of $10. AK Steel noted that sharply higher raw material costs stemming from Hurricane Katrina would result in the loss, despite firm shipment levels and demand. We are cutting our 2005 operating earnings per share estimate to 60 cents from $1.22. However, we are keeping our 2006 estimate at $1.50, assuming increased demand. We continue to view AK Steel as a highly leveraged turnaround candidate. Our $10 target price remains unchanged.


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