Ferrari (RACE) - Get Report shares rose on Wednesday as Morgan Stanley analyst Adam Jonas said the Italian luxury auto maker’s stock price could double as it produces its first sports utility vehicle and plans a dive into electric cars.
He lifted his share-price target to $265 from $220 and affirmed his overweight rating.
The stock recently traded at $192.26, up 3.7%. It has climbed 16% so far this year.
The Purosangue SUV could be the first step in a progression to $1 billion of annual sales of SUVs for Ferrari, Jonas wrote in a commentary cited by Bloomberg. That “does move the needle” for the company, he said.
And electric-vehicle sales could charge from zero to 50% of the company’s production within 20 years, Jonas said.
“We expect Ferrari to grow its CO2 footprint by a substantial amount and believe the company is increasingly looking to make EVs part of its strategy going forward.”
Electric cars “will pay off from a return-on-invested-capital perspective,” he said, helping Ferrari draw more customers.
The company’s second-quarter profit exceeded analysts’ forecasts, though they fell from a year earlier due to the coronavirus pandemic. Revenue dropped 42%.
The adjusted profit margin based on earnings before interest, taxes, depreciation and amortization “showed resilience, coming in at a very healthy 21.7%, albeit down 10.2 percentage points from 31.9% a year ago,” said Morningstar analyst Richard Hilgert.
He likes the company, but sees the stock as overvalued.
“While we are not averse to paying up for a high-quality, wide-moat-rated stock like Ferrari, the shares remain one-star [out of a possible five], overvalued relative to our forecasts for revenue growth, cash flow, and return on invested capital,” Hilgert wrote in commentary last week.
He puts the stock's fair value at $117.