Goldman Sachs Upgrade for Ford

Investing.com — Goldman Sachs upgraded Ford (NYSE:F) shares from Neutral to Buy on Monday, citing strong margin potential in its expanding software and services business.

Ford Pro’s Profitability

Ford’s commercial division, Ford Pro, is anticipated to drive profitability, with Goldman forecasting that software and physical services will represent 20% of Ford Pro’s EBIT by 2026.

Paid software subscriptions have been growing at an annual rate of 35-40%, and it is expected this growth will continue, supported by improved offerings like fleet services and ADAS. Ford aims for $1 billion in software revenue by 2025.

Cost-Cutting Initiatives

Analysts believe Ford’s cost-cutting strategies for internal combustion (ICE) and electric vehicles (EVs) will help counter industry challenges, including slowing demand and increased competition from Chinese automakers.

Despite a 13% drop in Ford’s stock year-to-date, attributed to cyclical concerns and high warranty costs in early 2024, Goldman sees 23% upside potential with a new 12-month price target of $13, given that shares currently trade at 5x the firm’s NTM EPS estimates, positioning them towards the lower end of the historical range.

Adjustments for Other Auto Stocks

Beyond Ford, Goldman modified estimates and price targets for other auto stocks in its coverage. General Motors (NYSE:GM) had its price target increased to $61, as Goldman views digital services and OnStar as long-term profit drivers. GM remains one of the few auto stocks performing well this year due to positive price-cost dynamics and capital allocation despite seeing lowered estimates amidst softer auto fundamentals.

Price targets and estimates were also decreased for Aptiv (NYSE:APTV), BorgWarner (NYSE:BWA), Gentex (NASDAQ:GNTX), Lear (NYSE:LEA), Magna International Inc (NYSE:MGA), Mobileye Global Inc (NASDAQ:MBLY), Cerence (NASDAQ:CRNC), Sensata Technologies Holding NV (NYSE:ST), TE Connectivity (NYSE:TEL), and Visteon (NASDAQ:VC) to reflect slower expected growth in the auto industry.