Ferrari’s (NYSE:RACE) CEO, “We Will Work to Double Profits by 2022”

Ferrari’s (NYSE:RACE) CEO, “We Will Work to Double Profits by 2022”

Ferrari’s (NYSE:RACE) CEO, “We Will Work to Double Profits by 2022”

$RACE

Ferrari(NYSE:RACE) announced  plans to introduce 15 new models on Tuesday, including a range of hybrids and a FUV vehicle, as it aims to 2X its earnings by Y 2022.

In the company’s annual Capital Markets Day presentation Tuesday, CEO Louis Camilleri pared Ferrari’s long-term profit guidance just a bit from the goal set by his predecessor. He emphasized that the company has a plan already underway to maintain its recent strong revenue and  profit growth.

Ferrari’s previous guidance.

Back at the beginning of Y 2018 CEO Sergio Marchionne (dec.), confirmed three “mid-term” goals for Ferrari’s finances:

  • Adjusted EBITDA of EUR 2-B no later than Y 2022
  • Industrial free cash flow of EUR 1.2-B no later than Y 2022
  • Net industrial debt to Zero no later than Y 2021

Now, here are the new financial targets that Ferrari is aiming to hit in Y 2020 and 2022 in Euros

Metric 2020 goal 2022 goal 2017 actual
Revenue More than 3.8 billion Less than 5.0 billion 3.4 billion
Adjusted EBITDA More than 1.3 billion Between 1.8 billion and 2.0 billion 1.0 billion
Adjusted EBITDA margin Over 38% About 34% 30%
Adjusted EBIT More than 0.9 billion More than 1.2 billion 0.78 billion
Adjusted EBIT margin About 24% Over 25% 23%
Adjusted earnings per share, diluted More than 3.40 More than 4.70 2.82
Industrial free cash flow More than 0.40 billion 1.10 billion to 1.25 billion 0.33 billion

Ferrari’s new  CEO Camilleri has backed off a bit from the profit goal set by his late predecessor in February.

But there is good news on 1 other front not shown in the table: Ferrari said that it now expects to be free of net industrial debt by Y 2020. That said, the revenue, margin, and overall growth goals are still ambitious, especially given that emissions regulations are tightening around the world, and Ferraris are not Green cars.

The Gig Q: How will it hit those numbers?

The Big A: With 15 new products, some intended to boost overall sales and others intended to boost margins. The plan is somewhat complicated, but here are the two key takeaways:

  • Ferrari will launch 15 new models by Y 2022, including new not-so-hard-edged GT’s aimed at increasing sales particularly in China. The goal is to incrementally increase overall annual sales without compromising Ferrari’s exclusivity and pricing power. Ferrari will do that by entering new market segments: A new Ferrari FUV called the Purosangue is in the works. 
  • New high-priced Icona models aimed at Ferrari’s most favored clienti. These will be strictly Limited Editions, aimed at increasing Ferrari’s already-strong 30% profit margins.

Ferrari’s product plan also means tightening emissions and fuel-consumption rules in its Key markets: the US, China, and the EU. Ferrari plans to make much wider use of hybrid technology across its portfolio in order to ensure that it can still offer its iconic internal-combustion engines with the Ferrari sounds, while complying with these stricter regulations.

The Big Q2: How should investors view this, then?

The Big A2: Ferrari’s stock isn’t cheap at around 38X earnings. That’s a rich valuation even for any luxury-goods company. Still, when a 70 anni company with the best margins the automotive business says that it will 2X its profits over the next 4 years while improving its margins further, pay attention, Ferrari does what it sets out to do and has since its beginnings.

Shayne and I believe that Ferrari will deliver on its profit-growth goals. So, there is room for the stock price to increase going forward. Calling the stock at 150, then 200 long term.

Ferrari is an Aristocrat stock, it pays a dividend.

Symbol Last Trade Date Change Open High Low Volume
NYSE:RACE 137.55 20 September 2018 1.74 135.87 138.09 135.72 512,325
HeffX-LTN Analysis for RACE: Overall Short Intermediate Long
Bullish (0.31) Bullish (0.35) Bullish (0.36) Neutral (0.22)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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