One Wall Street analyst thinks Ford shares will hit $13. Is it a purchase?

It has been a relatively difficult year for investors in shares of Ford Motor Company (F 1.15%). The company had to pivot with its electric vehicle (EV) strategy as sales exceeded expectations. Ford also faced quality issues that drove up warranty costs.

This has resulted in a share price that is down about 12.5% ​​year-to-date, well behind the S&P 500 index. But one Wall Street analyst believes Ford has some levers to pull to improve its trading results, and now is the time to buy the stock.

Ford Pro to the rescue

Goldman Sachs analyst Mark Delaney raised his firm’s rating on Ford stock to a buy recommendation and raised his price target by $1 to $13 per share. This implies upside potential of over 20% from the recent share price.

Last year, Ford restructured the way it structured its business to report its individual customer-focused business segments separately. These include its EV products, its traditional internal combustion engine consumer vehicles and its commercial segment called Ford Pro. The latter is aimed at business customers and fleets of Transit vans and other work vehicles.

Delaney believes the Pro business is key to improving Ford’s bottom line. He believes that a more profitable segment can lead to overall margin improvement. Ford reported that its Pro segment generated a 15 percent profit margin in the second quarter, compared with just 4.4 percent for its traditional consumer business. Ford’s software and physical services are also a high-margin, growing part of its business, which the analyst sees as helping boost results.

Investors who can be patient might do well to follow Delaney’s advice. In his second-quarter report, Ford CEO Jim Farley said “our core quality is improving.” Investors should monitor that area for a sustainable change by watching warranty costs.

If Ford can consistently achieve low warranty costs, the stock should rise from recent levels. Right now, it’s only trading at about 5 times next year’s estimated earnings. It just needs to get out of the way for investors to increase the valuation.