Goldman Upgrades Ford to Buy, Lowers Price Targets for Auto-Exposed Stocks

Goldman Sachs upgraded Ford shares to a Buy from Neutral, recognizing the strong margin potential arising from the company’s expanding software and services sector. Ford’s commercial division, Ford Pro, is anticipated to play a significant role in profitability, with projections indicating that software and physical services could contribute to 20% of Ford Pro’s EBIT by 2026.

The bank highlighted a robust growth rate for paid software subscriptions, which have been increasing at an annual rate of 35-40%. They expect this trend to persist, driven by enhancements in offerings like fleet services and advanced driver-assistance systems (ADAS). Ford aims to achieve $1 billion in software revenue by 2025.

Additionally, analysts pointed out that Ford’s cost-cutting measures for both internal combustion engine (ICE) vehicles and electric vehicles (EVs) are expected to help offset broader industry challenges, including slower demand growth and increased competition from Chinese manufacturers.

Year-to-date, Ford’s stock has declined by 13%, a drop attributed to cyclical concerns and unexpectedly high warranty costs in the first half of 2024. Analysts forecast a 23% upside to the newly set 12-month price target of $13, noting that Ford shares are currently trading at 5 times the firm’s next twelve months’ earnings per share (EPS) estimates, which is on the lower end historically.

Alongside Ford, Goldman also revised estimates and price targets for several other automotive companies. General Motors had its price target raised to $61, as the firm views its digital services and OnStar business as key profit generators. GM has been a standout performer among automotive stocks, benefiting from strong price-cost dynamics and effective capital allocation.

Despite the increased price target, Goldman analysts have lowered GM’s estimates amid softer automotive market fundamentals.

The bank also adjusted price targets and projections for companies such as Aptiv, BorgWarner, Gentex, Lear, Magna International, Mobileye Global, Cerence, Sensata Technologies, TE Connectivity, and Visteon, to align with the anticipated slower growth in the automotive sector.