Ferrari: Projecting the Future of the Company

Headline:

If you've been a long time member with us, you may remember that Ferrari was one of the first stocks we ever recommended. At the time some people didn't understand it but fast forward to today and the stock is up over 40% since then! While it is a household name, their overall output (revenue) is peanuts relative to the Toyota's and Honda's of the world. However there seems to be a seismic shift happening right in front of our eyes! The one legacy automaker is making substantial changes to their business with a turnover in the CEO office by hiring Benedetto Vigna. As a man who's background is in quantum physics rather than cars and has hundreds of patents to his name, times are clearly changing in Italy. With this change and anticipated updates, we've decided to revisit our models and make the appropriate changes to account for the automakers change in business model. We're extremely excited to break it out for you below:

Details:

When they first announced the new CEO, we will fully admit that it caught us by surprise. But after some further due diligence and research, we've uncovered the following. These signal some major changes happening that is causing us to rethink the company altogether. Let's get into the details:

1. Because the board of directors need to approve the new CEO, the shows a certain level of buy-in from the most powerful people in the company that the future for them will have some level of EV in it. While it is too early to tell, the fact that Ferrari is getting into electric vehicles, signals not only the future of the industry but a monumental shift in Ferrari's brand.
2. The new CEO brings major assets in terms of experience to Ferrari. During his past life he focused on two major area's. The first was Analog (application specific, general purpose) and the second was MEMS & Sensors (sensors & actuators, optical sensing solutions). Applications for the latter included motion and pressure sensors (highly accurate, ultra-low power systems on a chip), which resulted in over 50% market share in Motion MEMs for personal electronics and automotive telematics. Still with us? Long story short, Mr. Vigna helped handle/build a lot of the inputs into the modern day EV with his experience in LIDAR, sensors and retail monitoring. Something no one at Ferrari ever had experience handling.
3. So now that we've established that this hire means they're jumping into EV, let's discuss more implications outside of the obvious. As the pioneers in internal combustion technology there will now be a fundamental shift in vehicle technology, recruiting, EV supply chain management, manufacturing and strategic partnerships. This all adds up to a major overhaul of the organization in order to support these efforts and that will come in the form of investment via the cash on their balance sheet (over $2.5B). While this will take a hit in the short run, it overall drives the shift needed to make it work in the long run. While it is hard to predict the downstream revenue years from now, we can use comparables to project revenue out. Looking across the spectrum, we believe Ferrari will not only be able to keep sales up, but also drive sales prices higher and ultimately create a net more efficient business!

Conclusion:

While we fully admit that the road for Ferrari to transition to EVs will be long and challenging, we see the new CEO as the first major step in a long list of steps to expand the brand. With strong brand value and the appeal of luxury, a step into this direction expands their TAM significantly (while preserving scarcity). All in all this move will not affect sales for some years to come but increases our DCF (discounted cash flow analysis) cash flows in years 2024+. Discounting those back to today's value (even with an increase in interest rates) we arrive at a target price of $255!

Ticker: RACE

Rating: Overweight

Price Target: $255

Current Price: $211

Target Date: 5-8 Months