Luxury Sports Car Maker's Largest Product Offensive Will Expand Customer Reach

Key Takeaways

• Porsche's largest product renewals and diverse powertrain options are set to boost revenue by appealing to a wider customer base.
  
• Expansion in customization and electromobility focuses on enhancing margins and long-term growth within the evolving automotive market.
  
• Political and economic volatility, supply chain issues, and competition in China threaten Porsche's sales, earnings growth, and market position.

Catalysts

Engages in automotive and financial services business in Germany, Europe, North America, China, and internationally.

• Porsche is launching the largest product offensive in its history, having completely renewed four of six model series, which is expected to drive future revenue growth through a more attractive and younger product portfolio.
  
• The company has revised its product strategy to include a balanced range of combustion engines, hybrids, and electric sports cars, increasing flexibility and responding to market developments, likely enhancing revenue and net margins by capturing a broader customer base.
  
• Porsche is expanding its Sonderwunsch program and Exclusive Manufaktur options, which cater to customer individualization demands and could significantly improve revenue through higher ASPs and net margins, as these are typically higher-margin offerings.
  
• Investment in electromobility continues, with an adjusted strategy to match the market's pace and future demand for electric vehicles, potentially impacting long-term revenue growth positively as the EV market stabilizes and expands.
  
• The company targets a group return on sales of 15% to 17% in the midterm through strategic cost reductions and efficiency improvements, which should enhance net margins and earnings by optimizing cost structures and improving operational resilience.

Dr. Ing. h.c. F. Porsche Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Dr. Ing. h.c. F. Porsche's revenue will grow by 1.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 9.0% today to 9.7% in 3 years time.
• Analysts expect earnings to reach €4.0 billion (and earnings per share of €4.04) by about April 2028, up from €3.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €4.7 billion in earnings, and the most bearish expecting €3.2 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2028 earnings, up from 11.6x today. This future PE is greater than the current PE for the DE Auto industry at 5.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.75%, as per the Simply Wall St company report.

Dr. Ing. h.c. F. Porsche Future Earnings Per Share Growth

Risks

• Political and economic volatility, particularly in China, could significantly impact Porsche's vehicle sales in the long term, affecting both revenue and profit.
  
• The slower ramp-up of electromobility compared to initial expectations poses a challenge to Porsche's product strategy, potentially reducing future earnings growth.
  
• Continued tension in the supply chain could result in increased costs and threaten the availability of Porsche's products, negatively impacting net margins.
  
• Ongoing restructuring and investment costs, including a strategic charge of €800 million, will weigh on Porsche's operating and automotive net cash flow in the short to medium term, affecting net margins and earnings.
  
• Competitive pressures, both from local Chinese automakers with innovative technologies and general market expectations for in-car intelligence, could erode Porsche's market position and pricing strategies, impacting revenue.

Valuation

• The analysts have a consensus price target of €59.644 for Dr. Ing. h.c. F. Porsche based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €78.0, and the most bearish reporting a price target of just €45.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €41.4 billion, earnings will come to €4.0 billion, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 9.8%.
• Given the current share price of €45.91, the analyst price target of €59.64 is 23.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.