Ferrari (NYSE:RACE) Stock: Again, calling it at 200+
Target price: 210.00
Recent price: 140.19
Frame: 6 to 12 months
There is significant evidence that demand for Ferrari (NYSE:RACE) Supercars far exceeds the supply.
For example, a buyer cannot just walk into a Ferrari dealer buy and drive off with a brand-new car on the same day. In some instances, customers clienti must wait upwards of 2 years before taking delivery of their Supercars.
Rich people are not accustomed to waiting this long, and sometimes this actually hurts the company as customers will turn to other luxury autos such as Lamborghini or Aston Martin where the lead time is not nearly as long. But Ferrari’s clienti are used to it and after all there is only 1#1!
And a Ferrari waiting list is expected into the foreseeable future.
This being the case Ferrari can control how much revenue it generates, plus earnings are still expected to grow strongly over the next several years due in part to the launch of the much-anticipated FUV (Ferrari Utility Vehicle).
My work sees an 11.5% compound annual growth rate (CAGR) for luxury automobiles globally, adding that a Key driver is increasing demand for luxury SUVs. Making me “extremely bullish” about the market for ultra-luxury vehicles over $250,000 and SUVs overall could be 40% to 50% of that market in a few years. Plus, there is a clear distinction between the demand for luxury and for high performance.
Not to long ago, Ferrari said it would never come out with a Sports Utility Vehicle, that was when Ferrari was a unit of Fiat-Chrysler (NYSE:FCAU), Ferrari is now a stand-alone entity.
Ferrari is purposely late to enter the SUV model offering.
Porsche unveiled its first Cayenne SUV in 2002, hoping to sell 20,000 units a year, and sold 59,000 units in Y 2017. Due to the success of the Cayenne, Porsche rolled out the Macan SUV in 2014, targeting sales of 40,000 per year. It sold more than 98,000 units in Y 2017
The Maranello Outfit promises to keep purists and its investors happy, and what matters to investors are the numbers. The addition of its FUV to its portfolio will go a long way toward driving EBITDA (earnings before interest, taxes, depreciation and amortization) to $2-B within the next 5 years.
Aside from the FUV launch, the ability to sell more Limited-Edition Supercars will also help to drive Ferrari’s 5-year plan.
For example: La Ferrari Aperta sells at an estimated $2.05-M and is close to the end of its 209-unit production run. With an estimated 75% EBITDA margin, just 40 of these Supercars can deliver a consensus-busting Quarter.
Despite Ferrari’s new leadership, the fundamentals are intact, and the reduction of debt will continue to strengthen the company’s balance sheet.
So, barring any global economic meltdown, Ferrari is well positioned to thrive and make its goals +.
The Big Q: What are the risks?
The Big A: New environmental regulations.
Ferrari is subject throughout the world to comprehensive and constantly evolving laws, regulations and policies.
In the US and EU, significant governmental regulation is driven by environmental, fuel economy, vehicle safety and noise emission concerns. Evolving regulatory requirements could significantly affect the company’s product development plans and may limit the number and types of cars that are sold, which may affect revenue. In addition, regulation may also result in a change in the character or performance characteristics of Ferraris, which may render them less appealing to clients. Ferrari expects the extent of the legal and regulatory requirements affecting its business and its costs of compliance to continually increase in the future.
To mitigate that risk the company is planning to gradually introduce hybrid technology in both sports and GT cars.
In accordance with its strategy, the company says hybrid technology will be key to providing continued performance upgrades to sports car customers, and will also help capture the preferences of the urban, affluent GT car purchasers whom are increasingly targeted.
Hybrid technology has already been introduced in some models, such as LaFerrari and Aperta, but the integration of such technology into the existing car portfolio over time may present challenges and costs. R&D spending is expected to increase in 2018, particularly on hybrid technology-related projects, but if the introduction of hybrid cars proves too costly or is unsuccessful in the market, the business and results of operations could be materially adversely affected.
Over the years the iconic Italian firm benefited from the leadership of former COB/CEO Sergio Marchionne, who engineered the operating and financial turnaround of Fiat and Chrysler and the global expansion of FCAU into the 8th largest automaker in the world.
Prior to the premature death of Mr. Marchionne in July a management succession plan was in place, that pointed to the CEO Louis Camilleri, a member of the board who helped to develop the current 5-year plan, will likely be able to run the company at the same level.
CEO Camilleri said. “I am a team builder. And Sergio had a lot of other things on his plate. I have a singular focus on Ferrari and will be here permanently. I think that will make a difference.” Mr. Marchionne had 2 other companies to direct, plus the constant pain that he lived with and the cancer that killed him.
Management’s plan calls for an increase in Supercar shipments from 7,694 units to approximately 9,000 by Y 2019. Its maximum capacity is 16,000 units per annum, so Ferrari certainly has the option to increase production significantly, especially because demand is far greater than supply.
Plus, the target of roughly 9,000 sports cars, there will also be plenty of demand for the new FUV, which is slated to come out late in Y 2019. So, there could be 12,000 to 13,000 units rolling out of the Maranello facility by the end of Y 2020.
Notably, CEO Louis Camilleri say his goal is to protect brand equity, and investor demands. I believe he will deliver both.
Thus, reiterating my prior call for a share price at 200 ea.
Ferrari is the Aristocrat of the automotive sector, it pay a dividend too,
|NYSE:RACE||140.19||27 September 2018||–0.60||140.96||141.47||139.99||638,300|
|HeffX-LTN Analysis for RACE:||Overall||Short||Intermediate||Long|
|Bullish (0.32)||Bullish (0.37)||Bullish (0.36)||Neutral (0.22)|
Have a terrific week.