Multinational investment bank Goldman Sachs has upgraded Ford Motor Company stock to “buy” from “neutral”, raising its 12-month price target to $19 — roughly a 25 percent increase form Ford’s closing price of $15.40 on Friday. The bank also removed shares of cross-town rival General Motors from its list of recommended shares to buy.
In a research note issued Wednesday, the bank wrote that Ford is “hitting its sweet spot” and believes that will grow faster than GM, especially with its redesigned F-150 pickup truck. Despite an uptick in car sales, Ford shares haven’t seen much upside in 2015. In fact, they have trailed GM’s stock over the past 16 months.
But Goldman lists two primary reasons for its newfound faith in The Blue Oval: pickup trucks and China.
Ford is a year behind GM in redesigning its pickup trucks, which are mostly sold in the U.S. and serve as a major profit center. The automaker was facing various (expected) issues with the launch of the aluminum-bodied 2015 F-150, including production constraints that limited its ability to satisfy demand for the new truck. But The Blue Oval has solved those by bringing online a second assembly plant. With production and availability constraints more or less resolved, the new F-150 is the right vehicle to entice customers to switch from rivals GM (Chevrolet and GMC) and Fiat-Chrysler (Ram).
From a financial standpoint, Goldman expects GM and FCA to compete with the new F-150 by offering steep discounts that will cut into their profitability, while Ford reaps healthy profits in North America on its most lucrative product line.
The infamously-burgeoning Chinese auto market and economy are showing signs of deceleration amid an economic slowdown. The news is bad for Ford just as it is for GM, but “Ford is less vulnerable to a softening China,” Goldman wrote. That’s because its presence is not as established in the market, thereby making it less dependent on China.
That gives Ford a greater growth opportunity in the market that it plans on taking advantage of by introducing an aggressiv 15 new models this year alone.
Wall Street Reaction
Wall Street didn’t wait long to react to Goldman’s recommendations, with GM stock dipping nearly 2 percent on Wednesday. Ford shares, meanwhile, saw a 2 percent boost.