Goldman Sachs analysts upgraded Ford (NYSE:F) to a Buy, citing strong margin potential from its growing software and services business, particularly through its commercial arm, Ford Pro.
The investment bank expects software and physical services to account for 20% of Ford Pro’s EBIT by 2026, with paid software subscriptions expanding at an annual rate of 35-40%. Ford is targeting $1 billion in software revenue by 2025, driven by improvements in fleet services and advanced driver assistance systems (ADAS).
Goldman also highlighted Ford’s cost-cutting efforts in both internal combustion engine (ICE) and electric vehicles (EVs) as key to offsetting industry challenges like slower demand growth and increased competition from Chinese automakers.
While Ford shares have dropped 13% year-to-date due to cyclical concerns and higher-than-anticipated warranty costs in early 2024, Goldman sees a 23% upside to its new 12-month price target of $13. The stock is currently trading at 5x next twelve months (NTM) EPS estimates, at the lower end of its historical valuation range.