Ferrari Moves Into 'Top 3' Position At Morgan Stanley

Commenting on Ferari N.V. RACE first-quarter results, Morgan Stanley said the company is moving into its "Top Three Pick." Meanwhile, Jefferies views the results as guaranteeing the company delivering on its $1 billion EBITDA target earlier than it planned.

Third-Highest Ranked Auto Stock

Analysts Adam Jonas and Harald Hendrikse said they are now confident in making $100 stock price their base case and lifted Ferrari to their third-highest ranked stock in their U.S. Autos and Shared mobility coverage, replacing Tesla Inc TSLA.

The analysts listed the following as key drivers of its price target revision:

• A very significant first-quarter 2017 earnings beat versus forecast.
• Increasing 10-year growth CAGR of vehicle deliveries to 6.8 percent from 4.6 percent.
• Increasing exit operating margin to 23 percent from 20 percent previously, narrowing the margin gap to Hermes.
• Adding one turn of EBITDA to exit multiple in DCF, rising to 13x from 12x.

Earnings To Double In 5 Years

Morgan Stanley raised its 2017 and 2018 earnings forecast to 2.55 euros and 2.89 euros, respectively and feels the earnings upgrade to be far more substantial in 2019 and 2020.

"At a high level, we believe FCA can double its earnings power in 5 years. We don't cover many companies that can do this, and it is particularly notable for a company so under-levered," the firm said.

The firm said it believes January 2018 to be a significant catalyst, as the company said it would reveal at the time significantly more information on its long-term product expansion strategy including new cars, new technologies (i.e., BEV/hybrid tech) and potentially all new business models and concepts to expand the brand into nontraditional areas.

Continue To Like Ferrari

"We continue to like Ferrari for its stable, defensible qualities and are comfortable with the more modest growth opportunities around items such as volume and pricing," Morgan Stanley said.

Ferrari On Track To Deliver Early On Target

Jefferies analysts Philippe Houchois and Ashik Kurian said the first quarter results of 22 percent revenue growth, 36 percent EBITDA growth, 46 percent adjusted EBIT growth and 57 percent earnings per growth place Ferrari on track for early delivery of 2019 targets.

Future Holds Out For More Cars At High ROIC

Jefferies said it remains convinced extending exposure in autos will best ensure the higher growth rates and exceptional ROIC needed to support further multiple expansion. Faster auto growth does not reduce opportunities to leverage the brand into other activities in parallel or at a later date, the firm added.

Raising Estimates

Jefferies raised its 2017 and 2018 earnings per share estimates by 10 percent to 2.76 euros and 3.24 euros, respectively, citing higher margin delivery and slightly higher volume growth in outer years. However, the firm said its estimates assume margin compression in 2019–20 on higher product development costs resulting from range extension.

Raising Price Target

Morgan Stanley reiterated its Overweight rating on the shares and increased its price target to $100 from $72. Meanwhile, Jefferies maintained its Buy rating on the shares of Ferrari, while it lifted its price target for the shares to $96 from $74.

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