Ferrari Races Higher After Upgrade

Ferrari NV RACE is zooming higher after an analyst upgrade.

The Analyst

HSBC's Giulio Pescatore upgraded Ferrari from Hold to Buy and raised his price target from 114 Euros to 133 Euros.

The Thesis

After initiating coverage in December 2017, Pescatore said he was "hesitant to become more positive" on Ferrari due to high expectations and limited upside.

Ferrari CEO Louis Carey Camilleri's cautious comments on company targets during the Aug. 1 second-quarter earnings call sent shares lower by 8 percent. Pescatore said this seemed to have lowered expectations providing a good entry point.

Pescatore said Ferrari's pipeline remains strong with new range models and specials driving volume and price expansion. The analyst also believes consensus underestimate the inherit profitability of special models, such as the Pista and the overall mid-term pricing potential.

“A new model will be presented, which we expected to be the first of a new class of GT cars. Ferrari’s FCF generation should also improve significantly as the investments being made in 2018/19 start to bear fruit,” Pescatore said in a note.

He thinks significant plans for returning capital to shareholders will likely be announced by the company.

“We expect 15% of the market cap to be distributed to shareholders in the form of dividends and buybacks during 2018-22, limiting the potential of an acquisition,” he said.

Price Action

Ferrari shares were up 3.5 percent on the NYSE, trading around $134.53 at time of publication.

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