The big news yesterday was General Motors (GM) sold more electric vehicles (EVs) than Ford (F) in the first quarter. That’s got me motivated to write about an automotive stock.
However, rather than write about what a great job GM is doing with EVs, especially the inexpensive ones like the Bolt and Bolt EUV, I’m looking at the other end of the pricing spectrum to luxury sports car maker Ferrari (RACE)
There wasn’t much happening news-wise from Ferrari (RACE) on Tuesday. However, it’s beating GM where it counts -- in shareholder returns. RACE is up more than 25% year-to-date, more than 4x General Motors’ gains in 2023.
While investors might think they’ve missed the boat with Ferrari, it continues to exhibit all the attributes of a stock whose momentum should remain in play for the rest of this year and into 2023.
Here’s why.
Analysts Do Like Ferrari
According to Barchart.com data, the eight analysts covering RACE give it a Moderate Buy (3.88 out of 5) rating and a mean target price of $278.43, slightly above its current share price.
Ok, that’s not the most enthusiastic backing, but at least it’s considered a buy of sorts.
Over at MarketWatch.com, it shows 22 analysts covering Ferrari’s stock. Of those analysts, 12 rates it as Overweight or an outright Buy. However, even there, three rates it as Underweight or an outright Sell.
I’m guessing because it’s already up 25% in 2023 has something to do with analysts being hesitant to rate it a Buy.
In early March, investors did get one analyst willing to step off the curb and get behind Ferrari. Morgan Stanley analyst Adam Jonas made it his top pick in the U.S. auto industry, ahead of Elon Musk and Tesla (TSLA).
Jonas raised his price target for RACE to $310, an increase of $30 over his previous target, while maintaining his Overweight rating on its shares.
Investors.com reported some of the analyst’s comments to clients.
“‘Ferrari (stock) ain't cheap, but that's the price for security,’ Jonas wrote. ‘We see Ferrari as the most defensive name in our coverage that avoids much of the EV hype and EV risk.’
The Morgan Stanley analyst also said the firm is ‘becoming increasingly cautious on the space’ as auto credit pressures and demand issues continue.
‘We believe RACE is the best positioned company in our coverage in a highly uncertain macroeconomic and geopolitical tape,’Jonas said,” Investor.com’s Kit Norton wrote on March 6.
Norton also pointed out that the analyst said Ferrari’s order backlog is the longest of any auto manufacturer. And, of course, Ferrari’s always had pricing power.
Ferrari’s First EV Won’t Come Until 2025
In February, Ferrari CEO Benedetto Vigna did an interview discussing the transition to EVs with Automotive News. While he feels it’s inevitable, Vigna wants Ferrari’s EVs to continue to be fun to drive, not utilitarian vehicles like Tesla’s models that get you from point A to point B without polluting the planet.
Ferrari’s first EV will debut in 2025 and be available in 2026. He wants his EVs to provide a visceral driving experience for the Ferrari owner.
“Driving thrills is a combination of factors: longitudinal acceleration, lateral acceleration, sound, gear-changing, and braking. This doesn't change if the powertrain is electric,” Vigna said.
The Ferrari CEO believes that the typical auto manufacturer focuses too much on technology, forgetting that many buyers, especially those spending $250,000 a pop, want an exciting driving experience. So it plans to walk a fine line between the two.
The analyst believes that Ferrari can deliver an equally interesting EV in high demand as the current versions that are powered by internal combustion engines.
Where to For Ferrari’s Earnings?
Ferrari just completed its 75th year in operation, setting records for its financial metrics, including revenues of 5.1 billion Euros ($5.6 billion) with a net profit of 939 million Euros ($1.03 billion), an 18.4% net margin.
That’s 300 basis points higher than Tesla from a much smaller number of vehicles shipped -- 13,221 for Ferrari vs. Tesla’s 1.31 million -- and Ferrari thinks it can do even better in 2023. ]
In the year ahead, Ferrari expects revenues of approximately 5.7 billion Euros ($6.2 billion) with adjusted EBITDA of 2.16 billion Euros ($2.36 billion) at the midpoint of its guidance.
It is so confident about 2023 that it will pay bonuses for Ferrari employees of up to 13,500 Euros ($14,768) each, up considerably from 12,000 Euros in the past year.
Last September, Ferrari launched the Purosangue, its first four-door production vehicle, with a 715-horsepower V-12 engine. You can buy one for the low price of 390,000 Euros ($426,640). However, it plans to limit annual sales of the SUV-like vehicle to 3,000 units.
Only a few automotive manufacturers do scarcity like Ferrari.
RACE remains an excellent long-term buy despite its strong run in 2023.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
