Wednesday, February 9

Ferrari: A Strong Business Today & Tomorrow

While it's hard to deny the appeal of owning an actual Ferrari, the appeal of owning their stock varies from investor to investor.

And while we've been investing in the stock since April of 2020, many investors are still skeptical of their long-term viability.

However, the growth of the stock price over the last few years tells us a different story. 

Ferrari has been in growth mode since their IPO in 2015.

Much of the reason for their recent growth over the last few years though has been from their stated mission towards becoming an EV first car company.

And as we talked about last time we analyzed them, Ferrari becoming an electric first car company is a very real promise.

It may sound crazy but let us prove it to you below. 


Why We Like Ferrari Now:

As we mentioned last time, the hiring of their new CEO (Benedetto Vigna) signaled that times were changing for the legacy car manufacturer. This is because Mr. Vigna's background is in quantum physics rather than cars.

And while the future holds a lot of promise for Ferrari (more on this below), their current business alone is setting them up for a higher chance of success once these electric Ferrari's roll out.

And when looking more closely at their business today, and specifically their most recent earnings call, we see some truly exciting news.

From what we've seen so far, their current business alone more than justifies our price target (let alone the upside factored in from the future rollout of their EV cars. 

So what has us so excited about their core business today?

  • The first is that their 4th quarter shipments increased 10% (coming in at 3% better than expectations) since last year. Because of this increase in cars shipped, Ferrari raised go forward expectations on their EBIT from 1.1 billion euros to 1.15 billion euros. While this isn't a massive step up, Ferrari has now consistently outperformed expectations and grew their core business over the last few years.

  • The second is that their new CEO is bringing major leadership experience to the table that is already paying dividends. This is because he's been able to not only improve their current supply chain but he's also been successful in their initial R&D efforts. This is because Mr. Vigna has previously handled/built a lot of the inputs into the modern day EV with his experience in LIDAR, sensors and retail monitoring.

  • The third is that EPS, revenue, free cash flow & other important trackable measures all beat expectations and were raised going forward. In case this isn't clear, beating every analyst's expectations and also raising your own projections going forward is a very big deal. It signals not only that Ferrari has done better than expected but will also do better than expected going forward. When companies are beating every metric across the board and raising their guidance, this becomes a huge inflection point for us.


Why We Like Ferrari Tomorrow:

We hope this has been helpful to understand why their business today alone is worth investing in. But the real kicker for Ferrari is in what's next.

And as we mentioned last time we discussed the company, the future of Ferrari looks very bright behind Mr. Vigna.

This is because over the longer term, we see Ferrari playing in a market no one else is -- the ultra luxury EV market.

Looking at Tesla, Lucid, Rivian and other "leading" EV companies, we see that most companies are playing in the mid-high range target market (but no one is adhering to the ultra high range in the way that Ferrari will and can.)

Because of this, not only will Ferrari be able to command higher market share, but they'll be able to charge (no pun intended) an even higher price for their eventual electric Ferrari.

And once they leverage their economies of scale and manufacturing capabilities, Ferrari will also be able to sell a much higher margin car. This is the key part.

By rolling out their EV car, Ferrari can demand market share, make more money and also keep more of it. The opportunity for them is unparalleled relative to most other car manufacturers.


Ferrari Comparables:

And when compounding this growth into their stock price, they're actually relatively undervalued.

And while there is not a good comparable for the stock, we can use luxury brand stocks like LVMH and Hermes to see how they're trading comparably.

And when looking at Hermes specifically, we see that Hermes forward-looking EBITDA multiple is actually more expensive than Ferrari!

With a projection of over 7.5% CAGR on volume over the next decade, Ferrari's growth opportunity far exceeds that of Hermes. 

Factor in the multiple that EV companies get relative to retail brands and the opportunity for 2x growth over the next few years is well within reason.

So when you combine their current core business & their go forward business, we saw and continue to see a strong company that is very undervalued relative to their peer group.

Therefore this is a stock that we continue to rate overweight but are now upgrading our price target due to increased growth metrics going forward!

Price Target: $310 (37% upside)

Current Price: $227

Target Date: Q1 2023

Rating: Overweight

Risk / Reward: Medium / High

Ticker: RACE

Market Cap: 42.7 billion

Dividend Yield: 0%

Read this report for free

There's a reason why over 5 million investors love Moby, try for free today