Ferrari (NYSE:) is an iconic company with a rich history.

A Ferrari is a name that many people dream of owning. Its high performance and prestige are reasons why so many want to one day be able to. This company develops, manufactures, and markets luxury performance sport cars.

It also licenses Ferrari’s brand name to other luxury goods and lifestyle retailers.

At current stock prices, the company’s value is high. However, we are neutral. (See Ferrari stock charts on TipRanks)

Measuring Its Competitive Advantage

Ferrari is a world-renowned brand. This is not just an automobile company. For those looking to project wealth and success, the Ferrari brand can be a status symbol.

By comparing Ferrari’s earnings power value with the cost of replicating the business, we can assess Ferrari’s competitive edge. Adjusted EBIT after taxes is multiplied by the average weighted capital cost. The reproduction value of a business can be calculated using its total assets value. An organization is considered to be competitive if its earnings power is greater than the reproduction value.

Ferrari’s EBIT margin average over five years was 22.4%. Using its revenue for the last 12 months, its adjusted EBIT is as follows:

$4.747 billion x 0.224 = $1.063 billion

Using a marginal tax rate of 18%, the after tax adjusted EBIT is $872 million.

Ferrari has a weighted average capital cost of 8.3%. Its earnings power value amounts to $10.505billion (or $72m divided by 0.083).

Its total assets value amounts to $7.27 billion. Ferrari enjoys a competitive edge because its earnings power is higher than the company’s reproduction value.

Growth Catalysts

Ferrari has been working on becoming more efficient in the past decade.

The company’s margins show this. Gross margins as well as EBIT margins are in an upward trend. Margins fell in 2020 but have recovered in the past 12 months with EBIT margin surpassing those of pre-pandemic years and gross margins equal to 2019.

Ferrari will see continued growth if it can expand its margins.

Ferrari is continuing to attract a large number of new buyers. In the first half 2021, 60% of entry-level model orders were placed by new Ferrari owners. A revival of older customers, in their 40s, was also possible due to the increased number of first-time purchasers.

Because Ferraris can be very costly cars, many owners are older. The rise in customers over 40 shows that many people want to buy Ferraris as soon and as possible once they have the money. Ferrari will keep attracting new customers as the company grows and succeeds.

The number of female customers at Ferrari has increased by twofold in four years. Mainland China is leading this growth. Because most company owners are male, increasing interest from women has led to a greater fan base.

Wall Street’s Take

Turning to Wall Street, Ferrari has a Moderate Buy consensus rating, based on four Buys, three Holds and one Sell assigned in the past three months. An average Ferrari price target value of $239.55 indicates 10.3% upside potential.

Final Thoughts

Ferrari is the world’s strongest brand. Its current price does not provide an adequate margin of safety in comparison to analyst price targets.

Stock Bros Research had no position at the time this article was published.

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