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Shares of Ferrari (NYSE:RACE) are trading nearly 1% higher today after Jefferies analyst Philippe Houchois upgraded to ‘Hold’ from ‘Underperform’.
The analyst also raised the price target on Milan-listed shares (Ferrari (BIT:RACE)) to €170.00 (from €130.00).
The upgrade move comes after management “addressed our concerns about balancing growth, investment spending and intellectual property,” Houchois wrote in a research note.
New mid-term targets point toward double-digit earnings growth through 2026, stabilized ROIC, and raised cash returns.
“With powertrain IP critical to Ferrari’s position and valuation multiples, we found the capex guidance and investment to vertically integrate motors, inverters and battery modules as positive. With a 5 year product plan of 15 launches, similar to the 2018-22 period, we also note a stop to model “proliferation” which in our view contributed to the drift in invested capital. In the end, our numbers suggest an end to ROIC deterioration but not a return to earlier peaks,” the analyst added.
For Q2, Houchois is calling for 3,350 units (+25%) and an average selling price of €210,000. This should result in revenues of €1.22 billion, EBITDA of €432 million and EBIT of €307 million.
On a more negative note, the analyst reminds investors that Ferrari’s valuation is “still full.”
“Ferrari shares mostly drifted in recent years but effectively rerated despite falling returns, which in our view leaves little scope in our view to further re-rating. On ’23 JEFe Ferrari is trading on 6.2x EV/sales, 26x EBIT, 34x earnings (cash R&D) and >60x FCF. Oft used benchmark Hermes is trading on 25x and 37x EBIT, with higher ROIC (Factset consensus). ROIC profile and F1 profitability are the main sources of upside in our view,” Houchois concluded.
