BofA Sees Ferrari's 'Unique' Brand Value As Compelling, Initiates At Buy

Shares of Ferrari NV RACE have declined 6.55 percent since October 22, when the shares stood at $57.

• John Murphy of Bank of America Merrill Lynch has initiated coverage of the company with a Buy rating and a price objective of $60.
• Murphy mentioned that the company had a compelling brand value that was uniquely positioned in both the luxury goods and auto industries, with reasonable stock valuation with 18 percent upside.

Analyst John Murphy mentioned that although there appeared to be room for Ferrari to gradually “grow volume, revenue, profits, and cash flow, the key to long-term success is to protect its premium brand at almost any cost.”

Murphy believes that although there is no “direct comparable company,” Ferrari deserves to trade in-line with select companies in the luxury good segment, “as a deserved premium for a long history of demand outstripping supply is offset, in part, by a discount for the inherent capital intensity of Ferrari’s business vs. its peer group.”

With only 10 percent of Ferrari’s shares offered at the IPO, Murphy also expects scarcity value, similar to the exclusivity of the company’s vehicles, to be assigned to the stock.

Currently, there are three ownership blocks, apart from the IPO, with Piero Ferrari having retained 10 percent, Exor retaining 24 percent and 56 percent that is to be spun off in 2016 to other FCA shareholders.

According to the Bank of America report, apart from the scarcity value of the shares, other reasons to own the stock include its “Inherently defensive with financial resilience through economic downturns and control of future volumes,” as well as the company’s “long record of F-1 success.”