Ferrari (NYSE:RACE) has successfully built the world’s strongest luxury and premium brand. Brand, pricing power, and rising economies of scale give it a very competitive advantage over all other in its sector.
The Maranello Outfit has an very, very profitable growth track record through Sunny & Rainy conditions thus confirming Ferrari to be a perennial compounder for GARP investors.
My valuation suggests Ferrari shares currently trade at a 35% discount to the value of the growing enterprise. I like and have liked the stock since its IPO in October 2015 for its high-visibility, high-quality, and low-risk growth.
Note: I am a long time Ferrari fan, and have been driving Ferrari’s since the ’60’s
Ferrari is an Italian luxury sports car manufacturer; it was founded by Enzo Ferrari in Y 1939 and produced the 1st Ferrari-badged car in Y 1949.
- Enzo sold 50% of Ferrari in 1969 and an additional 40% in 1988, both to Fiat S.p.A. while retaining 10% for his son Piero Ferrari.
- In October 2014, Fiat Chrysler Automobiles N.V. (NYSE:FCAU) started a spin-off process of Ferrari, and subsequently sold 10% of Ferrari shares in an IPO on the NYSE, raising $900-M at $52/share, with the remainder distributed to Fiat Chrysler shareholders.
- As of Y 2020, Ferrari is 10% owned by Piero, 22.91% held by Exor N.V. (OTCPK:EXXRF), which is in turn controlled by the Agnelli family of Italy, and 67.09% held by the public.
Although Ferrari booked approximately $1.7-B of goodwill and intangible assets as of Q-3 of Y 2020, Brand Finance pegged its brand value at $9.1 billion as of October 2020 for the $41-B in enterprise value company.
Ferrari is special
- Ferrari is a legend built on decades of sporting successes. Ferrari competed in more than 900 Grand Prix and remain the only constructor to have taken part in every single edition of the Formula 1 World Championship since its launch in Y 1950. Scuderia Ferrari has the most Formula 1 Grand Prix wins (238) among all constructors – as a matter of fact, 56 more than the runner-up.
- Ferrari designers and engineers are reportedly so dedicated to their work that they willingly work overtime and long hours to deliver technological innovations and to experiment through countless iterations of minute improvements for mechanical performance and perfection in aesthetic style including the sound of the engine. Only passion can bring out such devotion from the employees. Generations of Ferrari designers, engineers, and workers poured their unblemished love of performance and perfection into the designing, engineering, and production of the highest-quality, highest-performance Ferrari cars, which end up giving the clients visceral pleasure in driving.
Many yrs ago, Enzo had established Ferrari’s golden rule of scarcity marketing: “always sell one car less than the market demands“. There are 3 hallmarks of Ferrari’s marketing strategy, i.e., constrained product supply, high residual values, and brilliant outreach programs, all designed to create an air of exclusivity.
- Ferrari usually carries no more than a dozen models across a wide spectrum of technical specifications. For example, as of end-2020, it has an 11 model line-up that includes Ferrari 812 GTS; F8 Spider; Portofino M; Roma; F8 Tributo; SF90 Stradale; 488 Pista; 488 Spider; 812 Superfast; GTC4Lusso; and GTC4Lusso T. Ferrari will only make a limited number of cars in each model, with so many rich guys wanting to own one. By holding back the gratification of immediate revenue on the part of Ferrari, it also deprives its customers on a long waiting list. In marketing strategy, Ferrari does differ from competing brands such as Aston Martin or Porsche.
- Disloyal owners who flipped a Limited Edition Ferrari for quick profits are rumored to be banned for life. Those who have demonstrated their loyalty over the course of many years may be invited to buy a limited edition Ferrari, the value of which typically multiplies in the secondary market due to the rarity.
Ferrari does not do direct advertising or self-promotion; for the most part, it just let its cars speak for themselves.
As part of its marketing strategy, Ferrari gets a lot of publicity from Formula 1 racing; better yet, its Formula 1 racing team pulls in sponsorship agreements and takes a cut from the Formula 1 World Championship commercial revenue.
Ferrari signs merchandising and licensing agreements with select partners to develop lines of Ferrari-branded products that are sold both online and in approximately 50 retail Ferrari (franchised and owned) stores and over 160 authorized dealers. Ferrari also signed licensing deals to allow the creation of Ferrari museums in Maranello and Modena, Italy and theme parks, currently including Ferrari World Abu Dhabi, and Ferrari Land in Spain, with new locations in North America and China being considered.
Ferrari is very good at creating a sense of community by organizing a lots of initiatives for its clienti, both in Maranello where its HQ is located, and across the world. It reaches out to its client base through Quarterly magazines and digital letters, and marketing events in the form of driving or racing events, which are actually paid for by the owner/participants.
F1 racing, brand licensing, museums and theme parks, and events are mutually reinforcing, as they, in combination, serve to support and spread the Ferrari brand, all at little cost to Ferrari. Compare Ferrari’s low-cost yet effective marketing strategy with the capital-intensive advertising of the other automakers, and it is Nil.
Ferrari has 2 Key ways to effectuate revenue expansion: 1) sell more Prancing Horse-badged cars without crashing the unit price and, 2) raise the average price tag without losing sales volume. Ferrari manages to sell more cars while raising the prices.
- Ferrari car sales volume grew at a CAGR of 12.0% from 1947 to 2019, which slowed down to 6.4% in 2013-2019. Ferrari car sales are more or less in line with the general trend of luxury car sales, which are expected to grow at a CAGR of up to 7% Vs the backdrop of global light vehicle sales growth at a CAGR of 3.6% and even slower growth in the long term.
- The cars and spare parts revenue per car sold, which can be used to approximate the average price of Ferrari cars, increased from EUR 236,429 to EUR 305,124, at a CAGR of 3.4% from Y 2013 to the 1st 9 months of Y 2020. This is much higher than the inflation rate in the EU during this frame, which ranges between 0.11% and 1.85%. It follows Ferrari has demonstrated pricing power during these 7+ yrs. Ferrari marked revenue growth at a CAGR of 5.4% in the frame.
Ferrari in its 70+ yrs of history, has remained Top in its circle of competence i.e. luxury Supercar making.
As its track record shows, Ferrari is able to grow the business, without resorting to M&A and extremely profitably. The business is extraordinarily resilient as it has proven with the profitable Q-2 in Y 2020. This is clearly a high-margin business; the company returned 30% on equity prior to the virus chaos and managed to stay profitable even in Q-2 of Y 2020. Its ROIC was as high as 18.73%, Vs a WACC of 6.23%.
I believe all of the above are a Strong indication of Ferrari’s durable competitive advantage in its place at the Top of luxury sports car production.
Ferrari is The Aristocrat of the automotive sector.
Our overall technical outlook is Very Bullish, a Key indicators are Bullish long-term. Ferrari reported strong earnings for Q-3 on 3 November.
Ferrari finished trading Monday at 216.40, + 1.51 against it 52 wk range of 127.73 – 218.72 in NY. It’s all time high in NY was marked at 28.72 intraday Monday, 14th December.
All technical indicators are Bullish to Very Bullish there is Strong support at 215.41, the overhead resistance is NIL. Ferrari’s stock is undervalued in here.
The Maranello Outfit’s shares were raised to Buy from Hold at HSBC, Morgan Stanley and Bank of America. UBS is now calling the stock at 365.
Ferrari will continue to create value in the long term as it becomes the world’s 1st Super Luxury brand.
Ferrari is a quality 1st long term luxury products investment, BAML raised it call to 270 long term.
I have raised my long term target to 375, a Strong Bull call, the strongest on the Street.
Ferrari has an average rating of Buy and a consensus target price at 211.95.
The Maranello Outfit’s shares were raised to Buy from Hold at HSBC.
Ferrari will continue to create value in the long term. Ferrari is a quality 1st long term luxury products investment, and I am calling it 375 long term , the Top on the Street, and adjusting it to 230/share short term.
A number of large investors have recently bought shares of RACE, and there is no insider selling.
The stock is now considered defensive in the sector.
Have a healthy week, Keep the Faith!