Ferrari (NYSE:RACE): The strong financials comes with a Ferrari price tag.
Ferrari’s performance throughout the C-19 coronavirus chaos is very impressive. Ferrari recently sold 10,000 units annually the 1st time in the automaker’s history with an average profit of $94,000 per car, about 24% margin. The Tops by far in the industry.
The performance is even more extraordinary given the company continues to adjust to the increasing and conflicting demands of the public markets, buyers, and ESG policies.
Ferrari is at the Top of the brand value hierarchy, that brand value permeates into everything Ferrari and is a critical element for valuing the company’s present and future.
Ferrari’s carry prestige that few automobiles can match. From a marketing and design perspective, Ferrari ingrains every new car with every bit of its iconic past. People are not buying an aluminum or carbon fiber chassis with V-12 or a bi-turbo V8 engine and F1-inspired dual clutch transmission, they are buying a piece of Ferrari history.
Ferrari became standalone public company in Y 2015 after Chrysler’s 10% stake and Fiat’s (NYSE:FCAU) majority ownership approved the deal.
Before that the Ferrari family generally maintained control since the company’s inception in the 1939. Even during Fiat’s ownership, the larger firm never had total voting control and Ferrari remained somewhat independent.
Ferrari’s CEO at the time and the major shareholders targeted a $9.8-B IPO or 48 to 52 per share.
The IPO priced favorably and began its ascent toward 180. Original shareholders earned well over a 200% gainer in a few years.
Comparing that to the broader market since Ferrari’s upward trajectory was in the midst of a strong Bull market.
Ferrari is my luxury indicator
Just like the collector car market, knowing price history is great but we are only concerned with the future.
Ferrari is trading at 54.5X next year’s anticipated earnings.
Ferrari launched a number of new models in Ys 2018 and 2019 including the 488 Pista, 488 Pista Spider, and Ferrari Monzas. The 488 was far beyond the normal upgrades made to Ferrari’s best selling mid-engine V8 line of cars. The 488 was the 1st Ferrari of its class to have twin turbocharging. In fact, not since the legendary Ferrari F40 of the 1980s had the firm taken this approach to any of its models.
Ferrari’s sales and market capitalization have spikes because it has embraced new technology while keeping the Ferrari brand and philosophy intact.
A significant part of today’s 54.5X earnings multiple is due to anticipation around Ferrari’s FUV. This a unique opportunity as it greatly expands the opportunity set without taking sales from other Ferrari models.
Despite an 88.7% decrease in Chinese-HK-Taiwan sales, strong momentum across the world enabled Ferrari to increase unit shipments in Q-1 of Y 2020 compared to Y 2019.
Liquidity is critical during any crisis and Ferrari’s €1,230-B at the end of Q-1 was further improved in April by another €350-M in undrawn capacity on its credit lines.
Ferrari successfully offered €650-M in medium-term debt due Y 2025 in May at 1.50%. The notes were placed at 98.898% of par and were more than 5X oversubscribed. Whatever doubt analysts and investors had about Ferrari’s ability to raise capital was erased with that vote of confidence.
Ferrari’s BBB+ credit rating and low leverage gives it sufficient cushion to remain investment grade through any foreseeable challenges.
Despite lowering guidance, the Ferrari announced an increase in its dividend by nearly 10% in April. Automotive free cash flow is expected to be minimal €200-M for Y 2020.
Our overall technical outlook is Bullish in here, as all Key indicators are Very Bullish.
Ferrari finished Tuesday at 179.0, +0.90 in NY, just shy of its intraday all time highs at 180.95 marked on 19 February 2020.
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 day, Keep the Faith!
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