Investing.com -- Goldman Sachs (NYSE:GS) upgraded Ford (NYSE:F) shares to a Buy from Neutral on Monday, citing strong margin potential from its expanding software and services business.
Ford’s commercial arm, Ford Pro, is expected to be a key driver of profitability, with Goldman projecting that software and physical services will account for 20% of Ford Pro’s EBIT by 2026.
The bank notes that paid software subscriptions have been growing at a 35-40% annual rate, and expects this business “to continue to grow (aided by improved offerings such as in fleet services and ADAS).” Ford is targeting $1 billion in software revenue by 2025, Goldman highlights.
Analysts also emphasize that Ford’s cost-cutting initiatives, both in internal combustion engine (ICE (NYSE:ICE)) vehicles and electric vehicles (EVs), will help mitigate industry-wide headwinds such as slower demand growth and rising competition from Chinese automakers.
Ford’s stock has fallen 13% year-to-date, which Goldman attributes to cyclical concerns and higher-than-expected warranty costs in the first half of 2024.
The firm’s analysts see a 23% upside to its new 12-month price target of $13, with Ford shares currently trading at 5x the firm’s next twelve months (NTM) EPS estimates, on the lower end of the historical range.
Beyond Ford, Goldman also adjusted estimates and price targets for several other auto-exposed stocks in its coverage.
General Motors (NYSE:GM), for example, saw its price target raised to $61 as Goldman continues to view its digital services and OnStar businesses as long-term profit drivers. GM has been one of the few auto stocks to outperform this year, buoyed by strong price-cost dynamics and capital allocation.
Though it hiked the price target, Goldman analysts lowered the estimates for GM amid “softer auto fundamentals.”
At the same time, the Wall Street giant trimmed price targets and estimates for Aptiv (NYSE:APTV), BorgWarner (NYSE:BWA), Gentex (NASDAQ:GNTX), Lear (NYSE:LEA), Magna International (TSX:MG) 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 the slower auto industry growth it now expects.