This morning, Fitch restored Ford's (F) credit rating to investment grade status, one of the main goals that CEO Alan Mulally and the management team have been working toward for the past few years. Fitch increased the company's rating from BB+ to BBB- early Tuesday morning and its shares are now on the rise. The ratings agency said that Ford's work to repair its balance sheet and improve its array of vehicles in recent years, "has put the company in a solid position to withstand the significant cyclical and secular pressures faced by the global auto industry." Ford's cash generation and lower costs will give it the financial flexibility it needs to stay at investment grade in a period of economic stress, Fitch expects.
As a slight negative for the Company, this could spell the end of Alan Mulally's tenure with Ford. When he took the reins of Ford from Bill Ford Jr. back in 2006, the goal was to obviously turn around the Company. Now, after shedding brands (Volvo, Land Rover, Jaguar)-- many at a loss, slashing one third of its worldwide workforce, and closing plants across the world, Ford has been restored to investment grade. Even better for investors, Ford is paying a dividend for the first time since September 2006.
The dividend and investment grade status had been two hurdles that management had been actively talking about overcoming; however, looking forward, Ford's success will rely heavily on the strength of the economy. Auto sales during March were lackluster despite the extremely mild winter, and with economic problems in Europe and a potential slowdown in China, there are concerns about the auto industry as a whole. These concerns are well founded, but Ford is one of the best positioned companies in the industry (much better than General Motors (GM)), and has a new product lineup of smaller more fuel-efficient names that are being released at an extremely good time, with gasoline prices on the rise.
While it is certainly a good thing for the stock that the credit rating was increased, the Company is now waiting for a similar announcement from Standard and Poor's. However, a potential negative for Ford in that respect is the possible end of Mr. Mulally's reign as CEO.
Disclosure: I am long F.
