I believe that more Northside can be found with the iconic Italian Supercar maker, Ferrari (NYSE:RACE). Having initiated coverage prior to the IPO have had my Buy rating on since July 2016 and a price target of 230 since December 2019.
The Big Q: Why?
The Big A: Ferrari’s Purosangue FUV will open up the doors to not only a new demographic but also into the potentially lucrative Chinese luxury auto market. Plus, Ferrari can produce 15,000 cars annually, a significant increase from its current pace of nearly 10,000 units, at little *incremental cost.
*Incremental cost is the total cost incurred due to an additional unit of product being produced. Incremental cost is calculated by analyzing the additional expenses involved in the production process, such as raw materials, for one additional unit of production. Understanding incremental costs can help companies boost production efficiency and profitability.
Historically, Ferrari has been known to limit the growth of its production, as it prefers to protect its exclusive image and the pricing power that comes with it, but as the company expands into China it can easily increase production for the growing market and keep its exclusivity. The market is much bigger that the supply might ever be.
The nature of Ferrari’s Supercars, and its ultra-wealthy clienti and admirers make the company more resilient during traditional economic downturns, the coronavirus had little impact on the company and is the defensive maker in the automotive sector.
Ferrari has margins that stand out way above traditional automakers, it will continue to trade at a more premium valuation and become more valuable due to the Purosangue FUV and expansion into the Chinese market.
Our overall technical outlook is Bullish in here, as all Key indicators are Very Bullish as it approaches its all time highs at 179.21 marked on 18 February 2020.
Ferrari (NYSE:RACE) finished Thursday at 177.56, +1.65 in NY just shy of its all time highs.
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.
Have a healthy weekend, enjoy the F1 race and Keep the Faith!