Goldman's Giant Auto Call: Rotating From GM To Ford

Goldman Sachs announced a major change of heart today, as a new report by analyst Patrick Archambault detailed the firm’s decision to upgrade Ford Motor Co F from Neutral to Buy and downgrade General Motors Co GM from Buy to Neutral. According to the report, growth was the main driver of the rotation decision.

Key differences
With the benefits of volume, mix and pricing resulting from the launch of its F-150, Ford is now firing on all cylinders. Goldman sees GM, on the other hand, scrambling to compete with Ford on truck incentives. 

China is also a major differentiator between the two companies. Goldman notes that, while Ford has been improving its positioning in China, GM “looks vulnerable” when it comes to its China guidance.
 

Growth projections
Goldman is now projecting compound annual EBITDA growth of 15 percent for Ford through 2017. When compared to the firm’s 5 percent growth projections for GM during that same time, it’s easy to see why Goldman decided now is the time to make the rotation.

Stock outlook
For Ford, Goldman’s new 2015/2016 earnings estimates are 4 percent and 8 percent above consensus estimates, respectively. The firms new $19 price target for the stock represents 26 percent upside from current levels.

For GM, Goldman’s 2015 earnings estimates are now 5 percent below consensus estimates, and the firm sees the potential for additional downward estimate revisions as well. Goldman’s $40 price target represents only 11 percent upside from current levels.

Ford’s stock was trading up about 2.0 percent in early trading on Wednesday following the upgrade. GM’s stock was trading down by more than 2.0 percent on the downgrade news.