By On Tuesday, Goldman Sachs upgraded Ford Motor Company (NYSE: F) from Neutral to Buy, raising the price target to $13 from $12.
This new target implies a potential upside of 23.5% from the current stock price.
Analyst Mark Delaney highlighted that Ford’s more profitable commercial business and its growing software and services segment could drive significant margin expansion.
Delaney estimates that software and physical services could contribute over $2 billion in EBIT by 2025 and more than $4 billion by 2030.
He believes these profit levels align with multiple expansions seen in tech industry case studies.
Additionally, cost efficiencies in Ford’s electric vehicle (EV) unit are expected to offset some industry challenges.
Delaney pointed out that Ford’s comprehensive supply chain and diverse portfolio provide a competitive advantage in the automotive industry.
The stock is currently trading at just 5 times Goldman Sachs’ expected next-12-month EPS estimate, which is at the lower end of its historical range of 5 to 10 times.
Analyst opinions diverge on Ford stock
While Goldman Sachs has turned bullish on Ford, not all analysts share this optimism.
On September 25, Morgan Stanley downgraded Ford from Overweight to Equal Weight, citing rising US inventories and vehicle affordability issues.
Analyst Adam Jonas expressed concerns about increasing credit losses among subprime consumers and China’s overproduction impacting global markets.
Ford stock: recent developments
Ford has been proactive in forming strategic partnerships and expanding its global footprint.
The company launched ChargeScape, a joint venture with Honda and BMW, aimed at integrating electric vehicles into the power grid to lower charging costs for drivers.
This software platform will connect EVs with utilities to manage energy flow based on real-time grid conditions, potentially allowing customers to earn financial benefits.
Moreover, Ford confirmed plans to restart manufacturing in India for global export, utilizing the Chennai plant to serve new markets.
This move leverages the manufacturing expertise in Tamil Nadu and reaffirms Ford’s commitment to international operations.
The company also continues to invest in software and digital experiences, with paid software subscriptions increasing by 40% to over 765,000, significantly contributing to gross margins exceeding 50%.
Ford’s commercial division, Ford Pro, is expected to generate $70 billion in revenue by 2024, capturing a significant portion of the company’s consolidated revenue.
With mid-teens EBIT margins, Ford Pro’s profitability is bolstered by a diversified revenue stream that includes parts, services, and software.
The company is also focusing on expanding its hybrid vehicle portfolio, with plans to grow it by 40% this year across nine models.
Hybrid trucks like the F-150 and Maverick are leading this growth, indicating strong market demand.
In August, Ford sold 182,985 vehicles, marking a 13.4% increase from last year.
Hybrid vehicle sales surged by 49.8%, while electric vehicle sales grew by 28.9%.
The F-Series remains the company’s flagship product, with nearly 100,000 units produced in August and over 651,000 year-to-date.
Ford Q3 earnings expectations
Analysts are anticipating solid Q3 results from Ford. The consensus estimates point to revenue of $41.47 billion and an EPS of $0.48, compared to $41.17 billion and $0.30 in the same quarter last year.
Notably, 12 of the 13 analysts on Wall Street who cover the stock have revised their EPS estimates upward in the last 90 days.
The upward revision of EPS estimates by the majority of analysts suggests growing confidence in Ford’s ability to navigate current market conditions and deliver strong financial performance.
Ford stock: attractive valuation and dividend yield
Ford’s stock offers compelling valuation metrics. Trading at the lower end of its historical P/E range, the stock presents a potential investment opportunity for value investors.
The company has a policy of returning 40% to 50% of its free cash flow to shareholders.
With the raised guidance for FY2024 free cash flow generation to $8 billion, investors might anticipate a generous supplemental dividend in the upcoming earnings report.
The forward dividend yield stands at 7.12%, significantly higher than its four-year average of 4.44% and the sector median of 2.39%.
With strategic initiatives underway and mixed analyst sentiments, Ford’s stock performance will be closely watched in the coming months.
Now, let’s examine what the charts reveal about Ford’s potential price trajectory and how investors might position themselves in this evolving landscape.
Ford stock: the downtrend that didn’t end
Ford’s stock entered a downtrend after making a high near $26 in early 2022. That downtrend lasted for close to 2 years with the stock making a low below $10 in November 2023.
Source: TradingView
Following that low, it seemed that the stock had come out of its downtrend having rallied to $14.85 by July this year.
However, after the company reported its Q2 earnings it tanked again and retested its last year’s low.
Currently, the stock still remains in the firm control of bears.
Hence, investors bullish on the stock must remain cautious and should only consider opening fresh long positions if it breaks above its earlier support now turned resistance levels at $11.54.
Traders who continue to remain bearish on the stock can initiate a fresh short position on a bounce back to $11 levels with a stop loss near $11.6.
If bearish momentum prevails, the stock can again fall near $9.5 where one can book profits.
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