Ferrari Stock Races Ahead Despite Coronavirus Recession, As Demand ‘Far Outstrips Supply’

Topline: Shares of Italian luxury sports car maker, Ferrari, whose famous cars cost between $200,000 and $300,000, have proved remarkably resilient during the coronavirus downturn, as the company looks well-positioned to weather the wider slowdown in auto manufacturing.

• Since the market hit a coronavirus crisis-level low point on March 23, Ferrari stock has made a comeback, rising over 21% since then. The stock, which currently trades at $157 per share, is up 13% in the last week alone, outpacing the benchmark index.
• Auto manufacturers have been hard-hit by shutdowns and a lack of demand due to the ongoing coronavirus pandemic: In the U.S., big companies like Ford and General Motors have seen their shares plunge 43% and 36%, respectively, so far this year. By comparison, Ferrari has weathered the downturn far better, dropping less than 7% so far in 2020. 
• That’s in large part thanks to its positioning as “a luxury goods company with the capital intensity of an automaker,” according to JPMorgan analyst Ryan Brinkman. Ferrari is the most famous brand in Formula 1 racing history, which contributes to “the high esteem in which the brand is regarded.”
• Ferrari looks to have been well-positioned before the coronavirus downturn thanks to significant earnings growth over several years thanks to higher profits from increased sports car sales and a consistent base of wealthy clients.
• “Demand currently far outstrips supply,” writes Brinkman, who points out that customers sometimes need to wait a year or more for delivery. The fact that the company sells the majority of its sports cars in advance of production means that despite the virus shutdown, sold orders can be stacked up for later in the year.
• “The company has confirmed that demand remains solid and they have seen no cancelations of orders related to the pandemic,” according to Morgan Stanley analyst Adam Jonas. He maintains a “buy” rating for the stock, which he believes “offers sustainable returns through a volatile and unpredictable 2020 trading environment.”

Crucial quote: “The group’s positioning, its more than solid order intake, capability in managing deliveries and waiting lists, and its structural strong commitment in prioritizing margins and [future cash flow] on revenues guarantees a higher resilience and better protection to the current challenging scenario,” writes Banca IMI research analyst Monico Bosio. She believes the stock could rise further, to nearly $182 per share.

Tangent: Piero Ferrari, the current owner of the luxury race car company, is worth $3.4 billion, according to Forbes estimates. His father, Enzo, founded the company in 1939.

Crucial statistics: A large majority of Wall Street analysts are bullish on the stock: 16 give it a “buy” rating, five give it a “hold” rating and just two analysts give it a “sell” rating, according to Bloomberg data. Morningstar and JPMorgan believe that the stock, which trades at $157 per share, will fall to $110 per share or $134 per share, respectively. Other big Wall Street firms, like HSBC and Morgan Stanley however, think the stock has upside potential: They put its price target at $180 per share and $163 per share, respectively.

What to watch for: With Europe and the U.S. going into lockdown due to the coronavirus starting last month, Ferrari could face some “potential supply chain issues” for April and a large part of May, which could potentially impact the company’s shipments, according to Banca IMI.

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