On Tuesday, CFRA announced a revision in its outlook for Ferrari (NYSE: NYSE:RACE), downgrading the luxury automaker's stock from Buy to Hold. The firm also adjusted the stock price target to $425 from the previous $465. The change in rating follows a significant appreciation in the company's stock value, with shares experiencing a 24% increase year-to-date (YTD) after a 59% surge in 2023.
CFRA's new 12-month target represents a $40 increase, based on a projected 2025 price-to-earnings (P/E) ratio of 44.8 times. This figure is slightly above Ferrari's five-year average forward P/E of 44.3 times. The firm's adjusted earnings per share (EPS) estimates remain at EUR 7.70 for 2024 and EUR 8.70 for 2025.
The downgrade was attributed to the stock's valuation after its impressive performance. CFRA regards Ferrari as one of the top names in the automotive sector, citing the company's industry-leading gross margins, which were around 50% in 2023, its unmatched pricing power, and a robust backlog driven by the global strength of its luxury brand. Despite these positives, the stock's current valuation is believed to fully reflect these advantages.
Ferrari has maintained an exceptional earnings record, with 14 consecutive quarters exceeding bottom-line expectations. This consistency is partly credited to the company's tradition of providing conservative earnings guidance.
Moreover, Ferrari's recent buyback report revealed that the company has completed approximately 37% of its planned buyback program, which totals EUR 2 billion and is set to run through 2026. However, CFRA anticipates that EPS growth will decelerate in 2024.
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