Two research firms upped their price targets for Ferrari (RACE) this morning following strong quarterly results that appear to put the company on track for early delivery of 2019 targets. One of the two, Morgan Stanley's Adam Jonas, also named the stock a Top 3 Pick in U.S. Autos and Shared Mobility coverage, replacing electric carmaker Tesla (TSLA).
REPLACING TESLA: In a research note this morning, Morgan Stanley's Jonas told investors he is moving Ferrari to be his third highest ranked stock in his U.S. Autos & Shared Mobility coverage, replacing Tesla, as the company demonstrates performance three years ahead of his expectations and pursues the balance of aggressive model line expansion while "preserving the hyper-exclusive mystique of the brand." The analyst also raised his price target on the shares to $100 from $72, citing a "very significant" first quarter earnings beat featuring 40% incremental EBIT margins and strong cash flow. Additionally, Jonas argued that he looks for Ferrari's high quality earnings to double in approximately five years. The analyst reiterated an Overweight rating on the shares given its stable and defensible qualities and as he is comfortable with "the more modest growth opportunities" around items like volume and pricing.
WHAT'S NOTABLE: The two stocks Jonas ranks above Ferrari in his U.S. Autos and Shared Mobility coverage are Adient (ADNT) and Fiat Chrysler (FCAU).
PERFORMANCE AHEAD OF EXPECTATIONS: Morgan Stanley's Jonas was not the only analyst bullish on Ferrari this morning. His peer at Jefferies also raised his price target on the shares to $96 from $74 as the company's first quarter results put it "firmly" on track for early delivery of 2019 targets. Analyst Philippe Houchois told investors in a note of his own that he believes the future looks set to include more cars at high ROIC. Extending exposure in autos should best ensure the higher growth rates and exceptional ROIC needed to support further multiple expansion, the analyst argued, adding that faster auto growth does not reduce opportunities to leverage the brand into other activities in parallel or at a later date. Nonetheless, Houchois noted that he thinks Ferrari is still looking for its rightful place among a rather disparate set of peers as EBIT margins move to the upper end of luxury peers, and with ROIC significantly higher than all given structurally low net working capital while multiples remain discounted. He reiterated a Buy rating on the shares.
PRICE ACTION: Shares of Ferrari trading in New York are fractionally lower this morning to $81.85.
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