Ferrari (NYSE:RACE) shareholders may be concerned after seeing the share price drop 16% in the last Quarter. But that does not change the fact that the shareholders have received really good returns over the last 5 yrs.
The share price is up an impressive 186% in that frame. So while it is not fun to see a share price fall, it is important to look at a longer time picture. Ferrari’s business performance will determine whether the stock price continues the positive long term trend.
So, let us take a look at the fundamentals over the longer term (the technicals point North), as follows:
A Key way to examine how market sentiment has changed over time is to look at the interaction between a company’s share price and its EPS.
During 5 yrs of share price growth, Ferrari achieved compound EPS growth of 17% per year. This EPS growth is lower than the 23% average annual increase in the share price. So, the market has a higher opinion of the business than it did 5 yrs ago when most automotive analysts did not understand the iconic Italian luxury supercar maker. That is not surprising considering the 5yr track record of earnings growth.
The image below shows how EPS has tracked over time.
It is worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward.
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return.
The TSR is a return calculation that accounts for the value of cash dividends assuming that any dividend received was reinvested and the calculated value of any discounted capital raisings and spin-offs.
The TSR gives a more complete picture for stocks that pay a dividend.
Note that for Ferrari the TSR over the last 5 yrs was 197%, which is better than the share price return mentioned above. And there is no prize for guessing that the dividend payments largely explain the divergence of this Aristocrat luxury brand.
Ferrari shareholders gained a total return of 5.0% YTD, but the longer term returns running at about 24% a yr over the past 5yrs better and expect the the yr will be super.
With that in mind, this is an Aristocrat business worth buying now, given the continuing positive reception from the market. It is always interesting to track share price performance over the longer term and I have been Bullish Ferrari since its IPO.
Ferrari is The Aristocrat of the automotive sector.
Ferrari is 1 of the most recognizable brands in the world, even becoming the world’s strongest luxury brand in Y 2021, according to Brand Finance. Its Brand Strength Index scored 93.9 pts out of 100 and has a brand strength of AAA+.
Ferrari is among Morgan Stanley’s Top stock picks for Y 2022, ranking 1st on the Adam Jonas-led team’s list of favorite EV stocks for 2022. The stock has replaced General Motors as Morgan Stanley’s top pick this year. Ferrari designs, engineers, produces and sells luxury performance sports cars, and is a prospective big player in the EV sector.
Analyst Adam Jonas at Morgan Stanley holds an Overweight rating on Ferrari shares as well, as of January 2022.
Our overall technical outlook is still Bullish, all Key indicators are Bullish long-term. Ferrari reported strong earnings for Q-3 on 3 November and did the same for Q-4 and F-Y 2020 as reported on 2 February.
Ferrari finished Friday at 213.34 within its 52 wk range of 127.73 – 275.30 in NY, down from its all time closing high at 275.30 on 22nd November.
Our Key technical indicators have turned Very Bullish, as the stock is very oversold in here. The candlestick pattern indicated the confirmation of the break out at 196.01 on 3 November and confirmed.
The Key resistance is at 237.13, the Key support is at 209.35, the stock is very oversold in here.
Societe Generale places a Street high price target of $290 on RACE as compared to the average sell-side price target at 195.93. Most Street analysts still do not know how to view Ferrari.
Morgan Stanley called out $RACE a “sleeper” EV play as the firm can justify more than 100% of the company’s value with its ICE business. MS’s new price target of $350 reps more than 35% Northside potential for shares and is above the average analyst 1 yr target is at 207.64.
MS automotive analyst says, “Longer term, we see scope for Ferrari to offer a range of EV products at potentially higher prices than the average selling price of today’s Ferrari, while leveraging economies of scale on higher volumes.“
Note: At the beginning of Y 2020 I called RACE at 230 by year’s end, the stock was trading at 165.22 on 1 January 2020, on 29 December 2020 it marked 233.66 intraday, an all time high
The Maranello Outfit’s shares were raised to Buy from Hold at HSBC, and Buys at Morgan Stanley and Bank of America.
UBS is now calling the stock at 365. I have not seen any other Street downgrades.
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 its call to 270 long term.
I have raised my long term target to 375, a Strong Bull call, the strongest on the Street and am holding the mark during this recent profit taking, and seeing RACE as a buying opportunity.
Ferrari has an average rating of Buy and a consensus target price at 208.29.
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 call on the Street, and adjusting it to 250/share short term.
A number of large investors have recently bought shares of RACE, and Ferrari continues to buy back its stock in here.
The stock is considered defensive in the sector.
Have a happy, prosperous week, Keep the Faith!