After years of underperformance, Ford Motor Company (NYSE:F) got a big upgrade Tuesday from an analyst who said the company’s earnings outlook has stabilized.

The Analyst

Morgan Stanley analyst Adam Jonas upgraded Ford from Equal-Weight to Overweight and raised his price target from $10 to $12.

The Thesis

Jonas said there were three primary drivers for his upgrade:

• Ford’s restructuring efforts, particularly in Europe.
• Strategic actions such as its deconsolidation of its Mobility business, its VOLKSWAGEN AG/ADR (OTC:VWAPY) partnership and its EV initiatives.
• Favorable product mix shifts toward high-margin F-150s and new utility vehicles.

“We are encouraged by Ford’s restructuring actions, partnerships and more focused product strategy that underpin cash flow and dividends,” Jonas wrote in a note.

Jonas said the Volkswagen partnership has been particularly encouraging, allowing Ford to split the costs of its autonomous and electric vehicle technology development rather than shouldering the whole burden itself. Jonas said Ford’s smaller, simplified auto lineup will also help lower costs and streamline its business.

Jonas raised his fiscal 2022 EPS forecast from 75 cents to between $1.20 and $1.30, roughly flat from its fiscal 2019 level. Jonas said Ford is now generating enough steady cash flow to ease previous concerns about maintaining its 6.3% dividend.

While the upgrade is certainly good news for Ford investors, Jonas said he remains cautious on the overall outlook for the U.S. auto market.

Price Action

Ford shares traded higher by 2.2% to $9.44 on Tuesday.

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