RACE: Expanded Buyback And Higher Payout Will Drive Future Upside

Key Takeaways

• New electric and hybrid models, plus expanded customization, tap rising demand from eco-conscious and affluent buyers while reinforcing the brand's exclusivity and pricing power.
  
• Diversified high-margin revenues-including lifestyle and sponsorships-reduce dependence on vehicle sales and position Ferrari for resilient, long-term earnings growth.
  
• Slow electrification, reliance on new launches, evolving luxury trends, and economic pressures could combine to threaten Ferrari's growth, margins, and long-term pricing power.

Catalysts

Through its subsidiaries, engages in design, engineering, production, and sale of luxury performance sports cars worldwide.

• Ferrari's imminent launch of its all-electric Elettrica and increased focus on hybrid models positions the company to not only capture demand from eco-conscious affluent buyers but also to comply with tightening global emissions regulations-likely supporting long-term revenue growth and net margin resilience as sustainability and premiumization trends accelerate.
  
• Expanding the model lineup (e.g., Amalfi, 296 Speciale, increased customization/personalization offerings) is successfully attracting new ultra-high-net-worth clients globally-especially in underpenetrated regions like China-supporting future revenue growth, ASP improvements, and long order backlog visibility.
  
• Ferrari's disciplined restriction of vehicle production and its resulting backlog (orders stretching well into 2027) underscores enduring demand, pricing power, and exclusivity, which should continue to buttress high gross margins and reduce earnings volatility despite macro uncertainties.
  
• The ramp-up of high-margin, recurring revenue streams from brand sponsorships, lifestyle, and personalization-fueled by lifestyle activities, racing events, and growing global brand desirability-will further enhance margin accretion, drive resilient long-term earnings, and reduce reliance on car sales volume alone.
  
• Ongoing investments in innovation (e.g., electrification, new manufacturing/paint facilities, and cross-sector technology transfers like the Hypersail project) both future-proof the business and leverage secular trends towards luxury experiential goods, likely resulting in higher capital efficiency and supporting sustainable earnings growth over the next cycle.

Ferrari Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ferrari's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 22.2% today to 23.0% in 3 years time.
• Analysts expect earnings to reach €2.0 billion (and earnings per share of €11.52) by about June 2029, up from €1.6 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 45.7x on those 2029 earnings, up from 33.7x today. This future PE is greater than the current PE for the US Auto industry at 26.2x.
• Analysts expect the number of shares outstanding to decline by 0.96% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 13.19%, as per the Simply Wall St company report.

Risks

• The transition to hybrid and electric vehicles, while progressing, appears slower and less defined than peers, with uncertainties around future EV model launches and evolving regulatory requirements; this could lead to increased R&D expenses and capital expenditures, pressuring margins if Ferrari fails to keep pace with electrification trends and global emissions mandates over the long term.
  
• There is evidence of product mix shifts and model cycle phaseouts (e.g., Daytona SP3), as well as some pressure on average selling prices (ASP) and a need to rely on new launches to sustain growth; this intensifies the risk of earnings volatility and revenue stagnation, particularly if new models fail to resonate strongly or if economic conditions cause demand to soften among ultra-high-net-worth individuals.
  
• Ferrari's strategy of controlling supply and exclusivity creates backlog and brand cachet, but also exposes the company to the risk that changing luxury consumption patterns, backlash against conspicuous wealth, and shifts toward shared or sustainable mobility may erode the long-term demand base, questioning the resilience of future revenues and pricing power.
  
• Rising input costs, supply chain challenges, and persistent currency headwinds (notably the US dollar/euro dynamic) are explicit near-term risks that could erode gross margins and profitability; if these industry-wide pressures are prolonged, they may have material adverse effects on Ferrari's earnings and free cash flow generation.
  
• While order books are currently strong, there are signs of "wait and see" customer behavior in some markets due to external uncertainties (tariffs, residual values, etc.), the impact of higher taxes on certain models in key growth markets like China, and the broader economic and geopolitical volatility could negatively affect revenue growth and expose Ferrari to periods of limited pricing flexibility and increased SG&A/cost pressures.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €368.25 for Ferrari based on their expectations of its future earnings growth, profit margins and other risk factors.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €430.0, and the most bearish reporting a price target of just €290.0.
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be €8.7 billion, earnings will come to €2.0 billion, and it would be trading on a PE ratio of 45.7x, assuming you use a discount rate of 13.2%.
• Given the current share price of €305.7, the analyst price target of €368.25 is 17.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.