Last Thursday, a Morgan Stanley analyst downgraded shares of Ferrari NV (RACE) to “underweight.” The reasoning was that competition from rival automakers will force Ferrari down a difficult path. Investors agreed. RACE shares fell a dramatic 7.1% on the news. The question we’re asking in today’s blog is how accurate of a prediction is this for Ferrari’s future?
Now, those of you who read my writings regularly know I’m a car guy. So, this question hits extremely close to home for me. Anybody who loves cars has to be impressed by one of the world’s most prestigious motorsports labels.
Ferrari developed and built its first sports car all the way back in the late 1940s. And it’s been a leader in high-performance automobiles ever since. In fact, two of its models are currently winning race championships in their own respective classes.
Currently, Ferrari manufactures seven vehicle models for consumers. These include four sports cars (488 GTB, 488 Spider, F12 Berlinetta and special series F12 Tour de France) and three GT cars (California T, FF, and GTC4Lusso). When you figure these cars range in price anywhere from approximately $188,000 to $400,000, you can quickly see why this Italian company is a leader in its field.
But Ferrari didn’t go public until October 2015. Since then, RACE stock has been on an absolute tear. In fact, it’s tacked on a nearly 120% gain in less than two years. Now, that’s an impressive run.
But that’s only part of the reason why I don’t agree with Morgan Stanley’s choice to downgrade this stock last week. There are several more positive factors currently at work for this company right now.
First off, Ferrari recently unveiled its new Portofino, a replacement car for their entry-level California T convertible. The Portofino has been described as having an even more aggressive, aerodynamic look than the California T, which should go over well with Ferrari customers.
What’s more, Ferrari also recently renewed its long-term sponsorship deal with Marlboro. This, of course, adds even more revenue to Ferrari’s coffers.
But what’s most exciting to me is analysts have been revising Ferrari’s third-quarter earnings per share estimates higher. In fact, over the past three months, earnings estimates have been revised nearly 7% higher. Typically, positive analysts’ revisions precede future earnings surprises. And earnings surprises bode well for a stock’s future price.
Add it all together, and it’s no surprise Ferrari maintains an A-rating in my Portfolio Grader tool. If you want to stay up-to-date with all my insights on the many ins and outs of today’s stock market, I urge you to stay tuned in to this blog right here over the weeks and months to come.