New Models Launching In 2025 Will Advance Electrification And Sustainability Goals

Key Takeaways

• Expanded infrastructure and new models, including electrics, aim to boost revenue and margins through enhanced production flexibility and personalization.
  
• ESG initiatives and brand visibility investments enhance long-term growth and profitability by aligning with consumer trends and fostering engagement.
  
• A potential oversaturation from new model launches could dilute brand exclusivity, while supply and economic challenges threaten brand desirability, margins, and diverse growth.

Catalysts

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

• Ferrari's expansion of infrastructure and product offerings, including the new e-building and paint shop for enhanced personalization, is expected to increase production flexibility, supporting revenue growth and improved net margins through operational efficiencies.
  
• The launch of six new models in 2025, including the anticipation of the Ferrari full electric, is likely to drive revenue growth, capturing both existing and new customers while expanding Ferrari's electrification journey.
  
• Continued focus on personalization, expected to remain around 20% of car and spare parts revenues, enhances the revenue stream due to the higher profit margins associated with bespoke options.
  
• Investment in lifestyle activities and brand enhancement, alongside new racing sponsorships, is intended to foster brand visibility and engagement, contributing to revenue growth and maintaining high profitability margins.
  
• Efforts toward carbon neutrality by 2030, including significant reductions in Scope 1 and 2 emissions through renewable energy use, are expected to support long-term earnings growth by aligning with increasing ESG initiatives and consumer preferences.

Ferrari Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ferrari's revenue will grow by 8.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.8% today to 23.8% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €11.45) by about March 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 63.6x on those 2028 earnings, up from 48.7x today. This future PE is greater than the current PE for the US Auto industry at 18.2x.
• 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 15.78%, as per the Simply Wall St company report.

Ferrari Future Earnings Per Share Growth

Risks

• The influx of 6 new model launches in 2025 might lead to market confusion and dilution of brand exclusivity, potentially impacting the pricing power and overall brand desirability, which can influence net margins.
  
• Concerns regarding the sustainability in demand, specifically related to electric and hybrid car residual values, could lead to decreased customer confidence and pressure on future sales revenues.
  
• The observed trend of 81% of sales being attributed to existing customers raises questions about customer base diversity, which could limit revenue growth if this trend continues.
  
• The ongoing supply chain challenges might impact production efficiency and lead to increased costs, posing a risk to net margins and earnings.
  
• Changes in global economic conditions and potential tariff implementations could necessitate strategic pricing adjustments or impact market allocation, thus affecting revenues and profit margins.

Valuation

• The analysts have a consensus price target of $507.278 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 $597.04, and the most bearish reporting a price target of just $397.31.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €8.4 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 63.6x, assuming you use a discount rate of 15.8%.
  
• Given the current share price of $449.56, the analyst price target of $507.28 is 11.4% 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.