Choose language

en
  • bg

  • cs

  • da

  • de

  • el

  • en

  • es

  • et

  • fr

  • hr

  • hu

  • it

  • lt

  • lv

  • nl

  • no

  • pl

  • pt

  • ro

  • ru

  • sk

  • sl

  • sv

  • tr

  • uk

English
  • Български

  • Čeština

  • Danske

  • Deutsch

  • ελληνική

  • English

  • Español

  • Eesti keel

  • Français

  • Hrvatski

  • Magyar

  • Italiano

  • Lietuvių

  • Latviešu

  • Nederlands

  • Norsk

  • Polski

  • Português

  • Română

  • Русский

  • Slovenský

  • Slovenski

  • Svenska

  • Türkçe

  • Українська

How do you prefer to top up your account?

* We don't charge any commission for making deposits into your account

  • Home
  • InvestIdeas
  • Ferrari Stock: +25% Yield Potential with a Good Business Model and Possible Expansion to Electric Car Market

Ferrari Stock: +25% Yield Potential with a Good Business Model and Possible Expansion to Electric Car Market

Company Name: Ferrari N.V.
Ticker: RACE.EU, RACE.US
Entry Price: $194.5/€164.3
Target Price: $245.00/€205.00
Projected Yield: 25%
Time Line: 3 to 6 months
Risk: High
Position Size: 2%

About Ferrari

Ferrari N.V. (RACE.EU, RACE.US) is a renowned Italian corporation that designs, manufactures, and markets the most recognized luxury sport cars across the globe. Technically, Ferrari N.V. is a holding company belonging to The Ferrari Group.

What's the Idea?

The idea lies in capitalizing on a stock that may rise with the economic recovery after the pandemic and the company's possible expansion to the electric car market.


Buy Ferrari N.V. Shares >>


Why trade Ferrari N.V.?

Reason 1: Rising Demand for Luxury Goods

2020 was a complicated year for traditional car manufacturers, as the demand sank, the capacities were not used to the full, and the electric car trend went up.

In the first six months of 2020, the demand in the luxury car segment was also down; however, in the second six months, it changed to the contrary, with some brands, such as Bentley, Lamborghini, and Porsche, even making record highs in terms of sales. On the other hand, Rolls-Royce, Aston Martin, Maybach did not perform that well.

Ferrari also faced a decrease in sales in the first six months, with the earnings going down by 8.10% YoY; this was mostly due to the sponsor and ad revenue going down, as most sports events were canceled or suspended.

In 2021, the demand for luxury cars may not only fully recover, but also rise quite quickly. The Global Wealth Report by Credit Suisse says the world's number of millionaires increased by 5.60M people, or by 10.80% YoY, in 2020, despite the pandemic. For Ferrari, this means of course a larger potential customer base.

Mordor Intelligence, with its quite conservative analysis, sees the luxury car market at $566B by 2026 (it was worth $410B in 2020), with an annual growth of 5%. All this means that large stock market investments and developing new businesses may help Ferrari gain more potential target audience and, subsequently, have a good growth potential in the midterm.

Reason 2: Successful Business Model and Electric Cars

Ferrari's business model contributes a lot to the company's success. Ferrari cars are exclusive, which creates an artificial deficit effect: when a customer orders a car, they have to wait for around three to twelve months. Besides, before ordering yourself a Ferrari, you've got to comply with some specific requirements and get approved by the company management.

One of such requirements is owning a few other cars manufactured within the corporation. Lately, a few well-off customers did not get approved to buy LaFerrari right because of not complying with the requirements. Such exclusivity maintains the demand high and justifies the high prices.

The electric car trend influenced almost all car makers that had to adjust to it. Ferrari is one of the few traditional car manufacturers that has not yet taken part in this trend. Louis C. Camilleri, formerly CEO at Ferrari N.V., once said the company will not start producing electric cars before 2025, as the battery making technologies are still not well enough developed, both in terms of drive range and charge speed.

However, Ferrari does already have some achievements in this field: in 2019, the company presented SF90 Stradale, a hybrid that includes both a traditional combustion engine and an electric engine. In the meantime, Camilleri left the company in 2020, with John Elkann being temporarily nominated a CEO, which might speed up the electric car development process within Ferrari Group.

Anyway, the company has enough funds to get started, and it will mostly likely try to expand to this market. If they succeed in manufacturing an electric car, that may boost both the stock price and the market cap.

Reason 3: Financial Performance

Ferrari successfully overcame the pandemic issues. Over 2020, the earnings fell by 8.10% to €3.46B, while the EBIT margin sank to 20.70% against 24.30% in 2019, the net profit plunged from 18.60% to 17.60%.

In Q4 2020, the figures improved significantly, with the earnings rising by 15.30% compared to Q4 2019, the EBIT margin amounted to 23.70%, while the net profit minus tax margin came at 22.50%.

With a stable financial position, Ferrari also has low debt burden: the Net Debt/Adj. EBITDA ratio is at 1.2х, the debt amount is €2.70B. The liquid cash amounts to €2.06, which includes a borrowing line of €700M. There are no liquidity issues, as the operation cash flow reached €839M in 2020. The FCF is at €130M, which is significantly lower than in 2019, but still positive against all pandemic circumstances.

The outlook for 2021 by the company management is quite positive: the earnings are expected at €4.30B, the EBITDA, between €1.45B and 1.5B, the EBITDA margin, at 33.70% to 34.90% (better than in 2019), and the EPS, between €4.00 and €4.20, against €3.71 in 2019.

If these expectations are met, this may boost both the company value and the stock price.

Currently, the ratios are as follows: LTM EV/S: 8.7x, LTM EV/EBITDA: 26x, LTM PE: 50x, Forward EV/S: 7x, Forward EV/EBITDA: 20x, and Forward PE: 40x.

This is somewhat higher than within Ferrari's core competition in the traditional car market, but in case the expectations of high earnings are met and the current margin is here to stay, such figures will look quite right.

In February, Morgan Stanley raised the target price for Ferrari to $273, while some other companies, such as HSBC and Kepler Capital Markets, downgraded the rating from Buy to Hold after Camilleri left the company.

Risks

Camirelli's having left the CEO's post means uncertainty for Ferrari's future and questions the completion of tasks set by the former CEO, such as reaching specific financial targets by 2022, producing PuroSangue (a crossover car), and reaching zero CO2 emission. On the other hand, this may also help the company develop electric cars quickly.

Risks

Camirelli's having left the CEO's post means uncertainty for Ferrari's future and questions the completion of tasks set by the former CEO, such as reaching specific financial targets by 2022, producing PuroSangue (a crossover car), and reaching zero CO2 emission. On the other hand, this may also help the company develop electric cars quickly.

How to Use the Idea

  1. Buy Ferrari N.V. stock at $194.5 (€164.3).
  2. Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts. 
  3. Sell the stock when the price reaches $245 (€205).

How to Buy Ferrari N.V. Shares?

If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.

After opening an account, you can buy shares in either of the following ways:

Freedom24 Web Platform: In the Web Terminal section, type RACE.EU, RACE.US (Ferrari N.V. ticker in the NASDAQ) in the search box, and select Ferrari N.V. in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.

Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type RACE.EU, RACE.US (Ferrari N.V. ticker in the NASDAQ) and select Ferrari N.V. in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.


Buy Ferrari N.V. Shares >>


*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.