Jefferies turns bullish on Ford, GM ahead of earnings, citing stronger margins

Investing.com -- Jefferies upgraded both Ford Motor and General Motors to Buy from Hold, arguing that improving U.S. auto market conditions, stronger capital allocation and easing legacy cost pressures position both automakers for higher earnings and cash generation over the next two years.

For Ford, the brokerage raised its price target to $17.50 from $14.50, saying second-quarter results are likely to mark a margin trough as production normalizes after supply disruptions. Jefferies expects management could raise full-year guidance, supported by healthy U.S. demand, improving warranty trends, a more disciplined EV strategy and steps to reduce its European manufacturing footprint.

The brokerage lifted its 2026 adjusted EBIT forecast to $10.3 billion, near the top end of Ford's guidance, and said free cash flow should improve as inventories rebuild, supplier compensation declines and warranty costs ease. It also expects the company's next-generation universal EV platform and battery investments to strengthen long-term profitability while narrowing the valuation gap with General Motors.

Ahead of Ford's July 28 earnings, Jefferies forecasts second-quarter adjusted EBIT of about $2.5 billion on a 5.4% margin despite an estimated 10% decline in wholesale volumes, with tariff benefits and lower material and warranty costs partially offsetting production weakness.

Jefferies also upgraded General Motors to Buy, raising its price target to $99 from $90 after the automaker's second-quarter earnings reinforced confidence that 2027 profitability and free cash flow will continue to improve. The brokerage expects GM to generate more than $10 billion in annual free cash flow from 2027, driven by new truck launches, efficiency gains and higher contributions from digital services.

The firm increased its 2026-2028 earnings estimates by around 6% and said GM's improving warranty performance, resilient pricing, lower EV restructuring costs and strong North American truck franchise leave room for further earnings upgrades. Jefferies believes GM's valuation remains attractive at roughly five times expected 2027 earnings, with additional share buybacks providing further support.

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