Ferrari N.V. (RACE) carries CFRA's highest investment recommendation of 5-STARS, or Strong Buy. We view the company as having one of the strongest brands in the auto industry and as largely insulated from broader consumer headwinds given its high-income customer base, explains Garrett Nelson, analyst at CFRA Research.
Based in Maranello, Italy, Ferrari is a luxury sports car manufacturer. Ferrari's roots date back to 1939, when it was founded by Enzo Ferrari as the racing division of Alfa Romeo.
For many years, Ferrari was majority owned (90%) by Fiat. However, it was spun out following the merger with Chrysler (now Stellantis) in January 2016. Ferrari also possesses one of the oldest and most successful Formula One (F1) teams in the sport's history.
In 2022, Ferrari shipped a record 13,221 cars worldwide (+18.5% Y/Y), up from 11,155 units in 2021 and 9,119 units in 2020. Volumes benefited from higher production, following Covid-19-related operational disruptions, while demand remained as strong as ever.
Unit sales have grown from just about 3,500 units in 2004, and in fact, up until 2016, the company would cap annual production around 7,000 units. Ferrari's decision to not cap its annual vehicle production around the 7,000 level has allowed it to flourish financially.
Ferrari's top- and bottom-line growth has been among the strongest of any auto manufacturer globally over the last few years. RACE's revenues increased from EUR3.46 billion in 2020 to EUR4.27 billion in 2021 and EUR5.10 billion in 2022.
Meanwhile, Ferrari's adjusted EPS surged from EUR2.88 in 2020 to EUR4.50 in 2021 and EUR5.09 in 2022. In 2022, RACE posted a 13% increase in adjusted EPS (EUR5.09 vs. EUR4.50), as revenue rose 19%, but adjusted EBIT margin contracted 110 bps to 24.1%.
On May 4, RACE posted Q1 adjusted EPS of EUR1.62 vs. EUR1.29 (+26%), well ahead of the EUR1.44 consensus. Sales rose 20% to EUR1.43 billion (EUR40 million ahead of consensus) on higher prices and a 10% Y/Y increase in shipments to 3,567 units, and the EBIT margin expanded 100 bps to 26.9% (110 bps ahead of consensus).
Despite the big earnings beat, RACE maintained prior 2023 guidance, but we believe the company is just being conservative, setting the stage for a guidance raise later this year. Ferrari has established a track record of regularly beating consensus earnings estimates (11 straight quarters) and raising full-year guidance. In fact, our 2023 EPS estimate of EUR6.40 is ahead of its current guidance of EUR6.00- EUR6.20 and we see additional growth to EUR7.25 in 2024.
In 2022, RACE paid dividends of EUR1.36 per common share (or EUR250 million), while share repurchases totaled EUR397 million. The basis of our 12-month target price of $340 is 42.6x our 2024 EPS estimate, a slight but justified premium to the stock's five-year average forward P/E of 42.2x.
Recommended Action: Buy RACE.
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