Electrifying Luxury With Innovation Brings Sustainable Growth And High Margins Ahead

Key Takeaways

• Strong demand for the F80 and focus on customization boost potential revenues and earnings with high margins.
  
• Commitment to electric vehicles and sustainability enhances competitive edge and positions Ferrari well for ESG-focused investors.
  
• Ferrari's strategic constraints, market focus, and macroeconomic challenges could limit revenue opportunities and affect growth if not carefully managed.

Catalysts

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

• The introduction of the new F80 supercar, which has already been fully allocated before production, indicates strong demand and the potential for high margins due to its limited run and customization options. This is likely to positively impact future revenues and earnings.
  
• Ferrari's focus on personalization, with personalization accounting for approximately 20% of total revenues from cars and spare parts, helps capture additional value from sales, likely leading to improvements in net margins.
  
• The strategic internalization of electric vehicle components and the launch of a fully electric vehicle by 2025 reflects a strong commitment to technology. This could enhance Ferrari’s competitive edge, potentially boosting revenue and sustaining or improving net margins.
  
• Ferrari's transition to a new ERP system is expected to bring efficiencies in production and inventory management, potentially reducing SG&A expenses and improving net margins.
  
• The company's reduction in CO2 emissions and emphasis on sustainability by achieving a 60% reduction in Scope 1 and Scope 2 emissions positions it favorably for investors focused on ESG criteria, potentially supporting future revenue growth.

Ferrari Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferrari's revenue will grow by 8.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.1% today to 24.1% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €11.81) by about November 2027, up from €1.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 62.4x on those 2027 earnings, up from 50.6x today. This future PE is greater than the current PE for the US Auto industry at 16.5x.
• Analysts expect the number of shares outstanding to decline by 1.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.32%, as per the Simply Wall St company report.

Ferrari Future Earnings Per Share Growth

Risks

• The expansion of Ferrari's manufacturing capabilities, including its new e-building, may not lead to increased production capacity but could strain resources and focus, potentially affecting revenue growth if not managed effectively.
  
• Ferrari's deliberate strategy to limit Chinese market growth to under 10% might restrict potential revenue opportunities from an expanding luxury consumer base in China.
  
• Macroeconomic uncertainties, such as potential tariffs or fluctuating foreign exchange rates, could negatively impact Ferrari's revenue or earnings, particularly given its reliance on exports.
  
• The increasing digital and software infrastructure expenses noted for ERP transitions may drive SG&A costs higher, potentially squeezing net margins unless offset by equivalent revenue or efficiency gains.
  
• Ferrari's focus on high personalization and limited production models may limit broader market appeal and constrain volume growth, impacting revenue stability, particularly if economic conditions reduce consumer spending on luxury goods.

Valuation

• The analysts have a consensus price target of €493.76 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 €559.65, and the most bearish reporting a price target of just €372.63.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be €8.3 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 62.4x, assuming you use a discount rate of 14.3%.
• Given the current share price of €428.48, the analyst's price target of €493.76 is 13.2% 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.