New Electric Models And Flexible Production Will Boost Market Presence

Key Takeaways

• Expanded production and personalization options are expected to boost revenue and increase flexibility.
  
• Launch of new electric models and sustainability initiatives may enhance brand reputation and revenue growth.
  
• Over-reliance on existing customers and potential model confusion could stunt revenue growth amid supply chain challenges and shifts towards hybrid and electric vehicles.

Catalysts

Through its subsidiaries, engages in design, engineering, production, and sale of luxury performance sports cars worldwide.

• The new e-building and the upcoming paint shop will enhance production flexibility and personalization options, potentially increasing revenue through higher personalization rates.
  
• Launch of six new models in 2025, including the anticipated Ferrari full electric, is expected to contribute to revenue growth and expand Ferrari's market presence in the electrification segment.
  
• Increased focus on brand value and customer engagement through exclusive client experiences and lifestyle activities should support revenue growth and possibly enhance net margins through higher brand loyalty.
  
• Investment in carbon neutrality and sustainability initiatives by 2030 could enhance Ferrari’s brand reputation and appeal, supporting future revenue growth and protecting margins through potentially lower operational costs in the long term.
  
• Financial discipline, including strong free cash flow generation and a focused capital expenditure approach, supports a favorable outlook for earnings by maintaining high efficiency and profitability.

Ferrari Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferrari's revenue will grow by 8.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.8% today to 23.5% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €11.43) by about May 2028, up from €1.5 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 60.3x on those 2028 earnings, up from 48.0x today. This future PE is greater than the current PE for the US Auto industry at 19.0x.
• Analysts expect the number of shares outstanding to decline by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 16.55%, as per the Simply Wall St company report.

Ferrari Future Earnings Per Share Growth

Risks

• The introduction of a multitude of new models in a single year might overwhelm or confuse potential customers, affecting sales and potentially leading to lower revenue realization per model.
  
• There is a noted reliance on existing customers for the majority of sales (81% of new sales to existing customers), which could indicate a potential stagnation in attracting new buyers, ultimately affecting future revenue growth.
  
• Continued personalization demands may lead to potential residual value risks for clients, potentially dampening the appeal of certain models and impacting both the brand value and future revenue streams from repeat customers.
  
• Supply chain challenges and dependencies could cause production delays or increased costs, affecting profitability margins and disrupting revenue forecasts if not managed effectively.
  
• The anticipated transition to more hybrid and electric vehicles may not immediately resonate with Ferrari's traditional customer base, which could limit market expansion or affect future earnings as the company navigates this shift.

Valuation

• The analysts have a consensus price target of €435.485 for Ferrari 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 €548.0, and the most bearish reporting a price target of just €360.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.5 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 60.3x, assuming you use a discount rate of 16.6%.
  
• Given the current share price of €410.1, the analyst price target of €435.48 is 5.8% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.