Ferrari (RACE) Gets a Two-Level Downgrade at Goldman Sachs to 'Sell' on Higher Capex to Fund Transition to Green Technologies

June 14, 2021 7:37 AM EDT
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    9 Buy, 3 Hold, 3 Sell

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Goldman Sachs analyst George Galliers downgraded Ferrari NV (NYSE: RACE) to “Sell” from “Buy” on expectations the company will seek higher capex to fund its transition to future technologies.

Last week, the Italian luxury car company tapped a top tech executive to be its new CEO. Benedetto Vigna, who currently heads the president of micro-electromechanical systems and sensor groups at the computer chip maker STMicroelectronics, will join on September 01.

"His deep understanding of the technologies driving much of the change in our industry, and his proven innovation, business-building and leadership skills, will further strengthen Ferrari and its unique story of passion and performance, in the exciting era ahead," said Ferrari Chairman John Elkann.

The new appointment signals Ferrari’s intention to accelerate its transition to technologies of the future, says Galliers in today’s note to clients. In addition to this, the analyst cites three other drivers behind the call to downgrade:

Ferrari’s recent share price rise has largely been driven by positive earnings evolution and consensus revisions. With the company having deferred its 2022 target to 2023, and Visible Alpha Consensus Data already c.12% above the now 2023 EBIT target, GS sees scope for positive earnings revisions as limited;

GS expects the broader auto industry to benefit over the next 12-18 months from a sequential improvement in global production, as a result of easing of semi-conductor shortages, improving end markets, and the need to re-stock. Sector relative, Galliers doesn’t see Ferrari as a notable beneficiary of this development; and

The stock is trading at a less attractive valuation compared to the other sector peers.

"We reduce our shipment expectations for Ferrari for 2021/22/23 by 400/530/1,110 units, respectively. We no longer assume that Ferrari will look to catch-up all the volume that was lost last year as a result of COVID-19 production disruption. We also take a more conservative view on the timing of the introduction of the Purosangue and the second generation of the Icona series. We reduce our EBIT forecasts for 2022/23 by 5%/16%, as a result of our weaker volume expectations for Ferrari and higher capex. We continue to use a 10-year DCF to value Ferrari, with unchanged terminal growth and WACC assumptions of 3.5% and 7.5%,” the analyst said in a note, before adding that “the relative underperformance of the US listing reflects the outperformance of large tech stocks in the US.”

Galliers also lowered the 12-month price target to $207.00 per share from $227.00 per share.



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