Investors have undervalued Ford shares amid the company’s efforts to turn around its business, according to Goldman Sachs.
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Analysts at the investment bank on Monday upgraded the stock to “buy” from “neutral” and raised its 12-month price target to $12, up from $9. Goldman Sachs also deemed the automaker’s dividend of 15 cents a share to be “manageable,” despite investors’ concerns that Ford could cut the quarterly payout with its bottom line under pressure.
Including expected share gains and the dividend, Goldman Sachs sees a total return of about 40 percent for Ford shares over the next year.
“As Ford begins to announce restructuring actions and as its operational improvements begin to take hold, we believe investors will start to look at the upside potential to the bottom-line from its turn-around actions,” Goldman Sachs said in a note to clients.
Ford has undertaken a broad restructuring plan that will cost an estimated $11 billion. Shares of the company have slid as traders await a full breakdown of the plan. Thus far, Ford has said it will reduce costs, create a stand-alone business for its China operations and move faster to develop new technologies such as self-driving cars. The company confirmed earlier this month it will cut some salaried workers as part of the restructuring.
Ford has also reallocated investments toward more profitable trucks and SUVs while reducing its portfolio of sedans. It plans to replace 75 percent of its current lineup in North America with new or updated models by 2020, including a new Escape, Explorer, F-150, Ranger and Bronco. Ford is also working on an off-road SUV and a high-performance, all-electric SUV.
Ford largely missed consumers’ shift from passenger cars to crossovers, Goldman Sachs said. The Dearborn, Michigan-based manufacturer saw its market share and pricing in the crossover segment suffer as it fell behind competitors that offered newer models in showrooms. The company also faces headwinds in the pickup truck market, the analysts noted, given the rollout of new full-size pickups from General Motors and Fiat Chrysler’s Ram.
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Goldman Sachs believes that Ford’s accelerated product launch cycle will allow the company to regain ground, particularly in North America and China.
Last week, Ford recorded a stronger-than-expected profit for the third quarter. Total net income still declined year-over-year, but pretax earnings in North America grew on a higher mix of trucks and SUVs.
Shares rallied more than 4 percent on the report, trading near $9.38 a share. The stock was down nearly 30 percent on the year as of Friday.