Ferrari's Pricing Power An Underappreciated Profit Driver, Says UBS

UBS reiterated its Buy rating on Ferrari N.V. RACE, saying the company's pricing power remains "underappreciated."

"We believe RACE's recent comments on price increases are underappreciated as profit upside drivers going forward. We believe RACE has successfully tested like-for-like price increases of 3–5 percent, vs 1–2 percent increases in recent yrs," analyst Michael Binetti wrote in a note.

Related Link: UBS Analyst Sees Ferrari's Earnings Report As "Thesis Stress Test"

"In our view, increasing pricing power could be a significant source of upside to RACE's EBITDA trajectory (vs the IPO EPS algorithm that was built based on 1–2 percent pricing power). On our math, a +1 percent increase in Cars & Spare Parts revenues from pricing translates to +260bp lift to EBITDA growth, compared to a +70bp lift to EBITDA growth from +1 percent of volume growth," Binetti continued.

Based on strong second quarter results, the analyst raised his ‘16 adj EBITDA view to €825 million (+10.2 percent year-over-year) from €805 million. Notably, the analyst believes there is very credible upside case where Ferrari can achieve its long-term target from the IPO (€1 billion in adj EBITDA, 9,000 units/year) a year ahead of its 2019 plan.

Binetti also hiked his price target to $53 from $50.

At the time of writing, shares of Ferrari rose 1.02 percent to $47.36.

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