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Ferrari Horse Logo Close Up on Red Car

Ferrari, an Italian luxury sports car manufacturer, reported a better-than-expected profit in the third quarter and forecasts this year’s earnings at the top of its previous guidance band, sending its shares up over 7% on Tuesday.

The company, known for its prancing horse logo reported earnings of EUR 330 million, nearly $386 million, or about $1.08 a share, up from EUR 311 million, about $1.05 a share, seen a year ago. That was higher than the market expectations of 96 cents per share. Ferrari said its revenue totalled EUR 888 million, or $1.04 billion, down 3% from a year earlier.

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Ferrari forecasts adjusted core earnings of around EUR 1.125 billion in 2020, compared with the previous prediction of EUR 1.075-1.125 billion.

“We think Ferrari is back in the race in 2020 second half, barring a second wave that may close operations and dealers again,” said Richard Hilgert, senior equity analyst at Morningstar.

“Our model already reflected the high end of management guidance with an EPS estimate of EUR 2.80. However, due to the time value of money since our last update, we raised our fair value estimate to EUR 101 from EUR 99. While we are not averse to paying up for a high-quality, wide-moat-rated stock like Ferrari, the shares remain 1-star rated, overvalued relative to our forecasts for revenue growth, cash flow, and return on invested capital,” Hilgert added.

Ferrari shares closed 7.6% higher at EUR 168.30 on Tuesday; the stock is up over 10% so far this year.

Executive Comments

“The new guidance implied a ‘very strong’ fourth quarter, with record quarterly volumes, revenues and earnings before interest, tax, depreciation and amortization (EBITDA). Solid proof that we are now running on all cylinders. We’ll enter 2021 with a very strong order book, we should have a pretty strong year,” said chief executive Louis Camilleri, Reuters reported.

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Ferrari Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $220.72 with a high forecast of $265.00 and a low forecast of $175.55. The average price target represents a 12.61% increase from the last price of $196.01. From those ten analysts, eight rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $265 with a high of $350 under a bull-case scenario and $130 under the worst-case scenario. The firm currently has an “Overweight” rating on the luxury automaker’s stock.

“We view Ferrari as our highest quality stock and we expect meaningful growth in: shipments, ancillary revenue opportunity and growth in EBITDA margins. The valuation is comparable to leading luxury goods player, Hermès (covered by Edouard Aubin), which we think is justified,” said Adam Jonas, equity analyst at Morgan Stanley.

Ferrari had its target price lifted by JP Morgan to $180 from $151. They currently have a neutral rating on the stock. Several other analysts have also recently commented on the stock. Credit Suisse Group reiterated a buy rating and issued a $198 price target on shares of Ferrari. UBS Group increased their price target to $212 from $209 and gave the company a buy rating.

We think it is good to buy at the current level with a target of $220 as 100-day Moving Average and 100-200-day MACD Oscillator signal a buying opportunity.

Analyst Comments

“Growth potential and strong execution. Global shipments of <10k units in 2020, growing at a 9.0% CAGR to 2030 ending at ~22k shipments. Adj. EBITDA margins rise to 34% in 2021 and 38% in 2022 on improved mix and pricing after launching 5 new models in 2020 and 2 in 2021,” Morgan Stanley’s Jonas added.

“Ferrari trades at a justified premium to luxury brands, in line with the luxury leader, Hermes, albeit with more opportunity to grow organically via new customers, new segments and geographically in China & Asia-Pac, as well as exhibiting a unique moat with a world-renowned brand and a 12+ month customer order book.”

Upside and Downside Risks

Upside: 1) Higher revisions to guidance. 2) Shipments higher, ASPs higher, margins higher. 3) Commoditization of EVs mean more value is placed on Ferrari ICE engine – highlighted by Morgan Stanley.

Downside: 1) Weakness in demand or production issues. 2) Execution risk around brand expansion. 3) Increases in engineering costs to EV migration & EVs could hurt the value proposition. 4) F1 R&D costs higher than expected. 5) Austerity limits the perception of Ferrari owners.

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