Ferrari (NYSE:RACE) commands a premium valuation based on 3 Key elements of its business model: pricing power, strong demand, and growth. The iconic Italian luxury Super carmaker delivered good results in Q-1 Y 2020 despite some difficult economic conditions. Its success augurs well for long-term investors.
The driver behind Ferrari’s success is brand strength. Ferrari’s brand is by some measures the strongest in the world.
Ferrari sells status symbols as much as they sell Supercars. This intangible asset creates the 1st Key element for investment, pricing power, which allows Ferrari to generate significantly better margins than every other luxury automaker.
Pricing power of this magnitude gives the company significant leeway to pass increased costs (in the form of R&D or capex) onto the customer and continue to generate profits.
The 2nd element is strong demand. Because Ferrari sells exclusively to HNWIs, its customer base is insulated from swings in economic conditions. The auto industry is a classic example of a cyclical business, but Ferrari was held up incredibly well during this C-19 coronavirus chaos.
Part of management’s strategy is to maintain a deep order book, with a wait time of 6-12 months for even the entry-level cars. This helps to insulate demand from economic shocks.
The final element is growth. Ferrari has increased shipment volume by about 6% annually over the last 5 yrs, and intends to continue a similar pace of growth in the future. This is supported by a growth in their client base as Ultra HNWIs were up about 13% last year, as well as expansion into previously underserved markets.
Note: The fact that Ferrari was able to project profitability and positive free cash flow while upping the dividend despite all the market disruption is very impressive.
Our overall technical outlook is Very Bullish in here
Ferrari finished Thursday at 158.59, +.20 in NY.
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 have called it at it at 200+/share long term, adjusting it to 200/share short term (after the virus) and siding with BAML to 230 long term for now. The stock is now considered defensive in the sector.
Just in: Ferrari N.V. (NYSE:RACE) today announces the pricing of a Euro 650 million issue of notes due in May 2025, being the initial offering for a minimum benchmark size more than 5X oversubscribed. The issue price of the Notes is equal to 98.898% of their principal amount and the Notes have a fixed annual coupon of 1.500%. The proceeds of the issue will be used for general corporate purposes.
Banca IMI S.p.A., Barclays Bank PLC, BNP Paribas, Goldman Sachs International, J.P. Morgan Securities plc, Merrill Lynch International and UniCredit Bank AG acted as Joint Lead Managers and Bookrunners to the issue of the Notes.
Application has been made for the Notes to be admitted to the Official List of Euronext Dublin and to trading on the regulated market of Euronext Dublin. Settlement and issue of the Notes are expected to occur on 27 May 2020.
Have a healthy day, Keep the Faith!