Expect Ferrari (NYSE:RACE) is odds on of giving great Q-4 results and guidance on earnings at the end of this month.
Shares of Ferrari are racing higher since 4 January
Carrying a market cap of about $23-B, Ferrari is smaller than many of the industry’s more well-known players.
But quality beats quantity, every time.
That’s the case with Ferrari, which unlike all of the rest of the automotive sector sans Tesla, all trade on cheap valuations.
Ferrari stock trades at roughly 33X this year’s earnings, whereas names like GM and F trade with single-digit P/E ratios and have dividend yields in excess of 4%.
But the businesses are very different.
While Ford and General Motors operate on thin margins and rely on mass production, Ferrari operates with high margins and limited production.
Comparatively, Ferrari has gross margins of 52.5% over the past 12 months, whereas Ford and GM tout gross margins of just 16.5% and 19.7%, respectively.
Further, while GM and Ford carry large inventories, Ferrari’s order book usually sells out for the year ahead of production.
As the late Sergio Marchionne, the former CEO of Ferrari, said in October 2017, Ferrari “happens to make cars, but it makes luxury goods for a select group of people who cherish belonging to an exclusive club for our users. That’s a different argument than making cars. The pricing dynamics are completely different.”
It’s a high-end product with wide margins and intended for a wealthy clienteli.
Early this month Bank of America/Merrill Lynch named it a Top pick in the automotive industry.
According to the analysts, “In our view, RACE is a unique asset, with resilient financial performance, significant intangible brand value, and a unique luxury status.”
BofA/ML is using a 150 price target, which is 15c above the stock’s 52-week high.
HeffX-LTN’s 3 Key technical indicators have turned Very Bullish in here, and our target is 153 mid-term.
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