UBS recently issued a research report on Ford (F.US), stating that the company's Q4 2025 results and 2026 outlook have increased the bank's confidence. Excluding a $900 million unexpected headwind from delayed tariff recoveries, Q4 2025 EBIT would have surpassed expectations by 69%, highlighting effective cost control. The bank maintained a "Neutral" rating on Ford with a $15 price target.
UBS noted that the "normalized" 2026 EBIT is approximately 20% higher than the company's guidance, while the 2029 target for an 8% profit margin could support EPS reaching $2.90. However, four key risks require attention: 1) Execution is critical—the auto industry faces high uncertainty, with variables like raw material cost fluctuations possible from now until 2027, let alone 2029; 2) 2026 actual free cash flow, including EV-related cash spending, is near zero; 3) 2026 performance is weighted towards the second half, which aligns with industry logic but adds risk if market conditions fall short of expectations; 4) While not intending to overly penalize Ford, the company's aggressive assumption for 2025 tariff rebates, which was more optimistic than General Motors' and ultimately unfulfilled, may cause investor skepticism regarding 2026 growth potential.
Simultaneously, the 2026 performance guidance presents a mixed picture. The company guides for approximately $9 billion in EBIT, a $2.2 billion year-on-year increase, primarily driven by: 1) A $1 billion reduction in Novelis-related costs, partially offset by a $1.75 billion headwind from increased aluminum tariffs and logistics costs—a temporary factor expected to reverse from 2027, with easing beginning in H2 2026; 2) A roughly $600 million improvement in the Model E business; 3) Overall neutral cost factors; 4) A slight EBIT improvement in the Ford Pro software and services segment; 5) Flat product pricing; and 6) A $500 million benefit from reduced compliance credit costs.
Regarding 2026's potential growth and risks, UBS believes upside could come from pricing/product mix optimization, further cost cuts, and reduced investment scale. Downside risks include intensified market competition, escalating supply chain challenges, and warranty expenses exceeding expectations.
Looking further ahead, normalized profit improvement is expected to drive stronger performance in 2027. Some argue the starting point for 2027 should be $10.75 billion EBIT, and market consensus has already reached $10.4 billion. Factors like Super Duty production increases, continued narrowing of Model E losses, and further optimization of the Blue product portfolio could push EBIT above $12 billion in an optimistic scenario.
Furthermore, Ford reaffirmed its target for an 8% adjusted EBIT margin by 2029. Assuming low single-digit revenue growth, this target implies an EPS of approximately $2.90. However, it is emphasized that given the auto industry's numerous variables, this target serves only as a reference for the long-term growth ceiling. Historically, Ford had projected a 10% margin for 2026 during its 2023 Investor Day, whereas the current 2026 guidance is only about 5%.
UBS has raised its 2026/2027 EPS forecasts from $1.49/$1.78 to $1.55/$1.86. However, as current profit levels are more normalized, the bank has adjusted the 2027 price-to-earnings valuation multiple from 8.5x to 8x. Although 8x remains slightly above the average forward 12-month PE of 7.3x since 2022, UBS considers this valuation level reasonable given potential for further upward revisions to forward earnings.