Vivek Kumar
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Ferrari N.V., known as New Business Netherlands NV, is entering a higher phase of growth and a tech transition that takes investor thinking beyond the limits of luxury goods comps. and can grow the super-luxury pie much faster and more sustainable than the market expects, wrote Morgan Stanley’s equity analyst Adam Jonas, who raised his base-case forecast of an Italian luxury sports car manufacturer to $265 from $180.

This upgrade was largely driven by Morgan Stanly’s increased views of growth, margin and multiple. They forecast growth for RACE of over 7% and said have greater conviction that Ferrari can capture share in the high-performance super-luxury EV segment, which is they also forecast to grow at a CAGR of 19.5% through 2040.

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Morgan Stanley forecast long term OP margin assumption of 26%, which is marginally above the pre-COVID-19 level of 24.4%.

Ferrari N.V. (RACE) shares have recovered completely from the COVID-19 panic selling seen in March, gaining over 40% from low of $122. The stock is up about 10% so far this year.

“In 2022 we now forecast EBITDA of 1.87 billion euros vs Consensus of 1.74 billion euros. In outer year 2025, previously we were forecasting EBITDA of 2.34 billion euros in 2025; now we’re at 2.65 billion euros. We expect EBITDA margins grow from 32% in 2020 to 40% by 2023 and steady out at 39% from 2027,” Morgan Stanley’s Jonas said.

“We account for a more aggressive capex spend to account for investments in powertrain & an EV platform, software updates, battery cell R&D, etc. Over the next 5 years, from 2021 to 2025, we expect cumulative Capex of 6.0 billion euros vs. 4.6 billion euros previously.”

Morgan Stanley target price under a bull-case scenario is $350 and $130 under the worst-case scenario. Several other equity analysts have also updated their stock outlook. JP Morgan raised the target price to $151 from $147; however, UBS lowered its target price to $176 from $180; Credit Suisse cut the target price to $198 from $205.

Seven analysts forecast the average price in 12 months at $205.37 with a high forecast of $235.00 and a low forecast of $147.00. The average price target represents a 10.72% increase. From those seven, six analysts rated ‘Buy’, one analyst rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

“1) We expect the unveiling of the Purosangue to be a catalyzing event and an inflection point for the growth trajectory to steepen. 2) We also look for an update to the 2022 target as well as other disclosure of medium to long-term targets at a Capital Markets Day that we expect in 2021. We would urge investors to get ahead of these potential catalysts as we think the market has done too perfect a job pricing Ferrari in the short term,” Jonas added.

“As Ferrari is considered a bond like proxy and ‘safe haven’ asset by investors, as the yield curve steepens, investors may find a better opportunity cost with other equities to derive yield elsewhere. We note that Ferrari generates substantial FCF already today ~$3.50/Share on MSe in 2022, and pays a dividend yield of <1%.”

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