Ferrari Is Revving Up Analysts: What Wall Street's Saying

Wall Street has initiated coverage on Ferrari, and analysts are expecting the stock to start hitting the gas.
By Tobias Burns ,

Investors, start your engines -- and clear an extra lane in your portfolios.

Several Wall Street investment firms have initiated coverage on Ferrari (RACE) - Get Report , which was recently spun off from Fiat Chryler (FCAU) - Get Report , and analysts are expecting the stock to start hitting the gas. Analysts at Bank of America Merrill Lynch see the stock reaching $60 in the next 12 months, up 20% from current levels of around $50.

Researchers at JPMorgan Chase are more skeptical, starting with a neutral rating and setting a more modest price target of $52.

The generally favorable outlook for the new stock -- which represents only 10% of the automaker's equity -- is due in large part to a pledge from management to start selling more vehicles. The company has signaled it wants to sell upwards of 9,000 vehicles this year, up significantly from its 2014 total of 7,255 units, according to JPMorgan. The move is somewhat controversial for fans of the luxury automaker, who see the brand's exclusivity as its key selling point.

Analysts have also signaled they want the company to pare back its the sizable racing-related R&D budget, which JPMorgan expects to fall off in 2018 and 2019.

The other ownership blocks of Ferrari include Piero Ferrari, with 10%, and European investment company Exor, with 24%.

Here's what analysts were saying on the newly public company.

Bank of America Merrill Lynch analyst John Murphy (Buy, $60 price target)

"Our PO of $60 implies about 18% upside potential. Risks include:
1. a devaluation of the brand due to over production or licensing;
2. a decline of HNWI community;
3. degradation in perceived vehicle quality or performance;
4. impairment of its Formula 1 reputation or perceived racing pedigree;
5. F-1 financial losses persist/accelerate;
6. deterioration in adjacent businesses; and
7. intensifying competition in the luxury vehicle market."

JPMorgan analyst Ryan Brinkman (Neutral, $52 price target)

"We initiate coverage of Ferrari (RACE) with a Neutral rating. On the positive side, there is high visibility into strong (perhaps atypically strong) earnings growth medium term, driven by
1. an increase in car sales toward 9,000 units;
2. the paring back of racing-related research & development costs;
3. the cycling past costly currency hedges; and
4. realization of lower commodity prices and other manufacturing cost saves.

"Balancing this is that these latter three factors likely represent one-time opportunities and we view valuation as fair. Ferrari is an iconic brand, and we believe there is tremendous opportunity to expand into more non-automotive product categories, although considerable success in this regard seems needed in order to sustain strong earnings growth."

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