Ferrari Drives Upward Value Revisions

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【Summary】Ferrari's fair value estimation has increased, along with other carmakers like Mercedes-Benz, Volkswagen, and Renault, due to strong quarterly results. Hermes International and L'Oreal also saw their fair value revised upwards. ING Group's fair value increased, while Kone Oyj's fair value decreased due to declining market activity in China. Fair value for Corporacion Acciona Energias Renovables was also reduced due to lower electricity prices.

FutureCar Staff Aug 14, 2023 9:19 AM PT

July is typically the month when companies report their quarterly earnings. Morningstar's equity analysts have been busy reviewing the fair value estimations for the stocks they cover. Last week, they focused on the fair value of UK stocks, and now they are delving into the entire European universe. During the period between June and July, the analysts revised the fair value estimations for 42 companies. Overall, the tone is positive, with 30 upward revisions and 12 downward revisions.

One stock that experienced a significant upward change in fair value estimation is Ferrari (RACE), which increased from €190 to €257. In the second quarter, Ferrari exceeded expectations by posting diluted earnings per share of €1.83, up €0.47 from the previous year. The company also adjusted its full-year sales forecast from €5.7 billion to €5.8 billion.

Other carmakers also saw revisions in their target prices. Mercedes-Benz (MBG) had its fair value increased from €109 to €111, while Volkswagen (VOW3) saw a slight increase from €338 to €344 euros. Renault's (RNO) target price went up by €1, from €86 to €87. These revisions are driven by positive quarterly results and you can find more information about why these car manufacturers are considered undervalued on Morningstar's website.

In addition to car manufacturers, luxury companies Hermes International (RMS) and L'Oreal (OR) have also had their fair value revised upwards. Hermes International's fair value increased by 28% from €990 to €1,270 due to strong revenue growth and improved profitability in the first half of 2023. Jelena Sokolova, the sector analyst, explains that the increase in fair value is primarily driven by reduced assumptions for the firm's cost of capital, reflecting Hermes' resilience to economic cycles and low leverage. L'Oreal's fair value estimate was raised to €376 from €336, mainly due to a higher annual sales growth forecast.

Turning to the banking sector, Morningstar only increased the fair value of Dutch ING Group (ING) from €17 to €19 euros this month. This valuation is equivalent to 1.5 times ING's tangible book value in 2021 and 11 times the estimated earnings for 2023. On the other hand, Kone Oyj (KNEBV), a leading manufacturer of elevators and escalators, experienced a reduction in fair value from 56 euros to 48 euros. The decline is attributed to the ongoing decrease in market activity in China, which is a crucial market for Kone. The analyst covering the company, Grant Slad, does not foresee a significant turnaround in the sector despite recent Chinese policy measures aimed at reviving the property market.

Lastly, the fair value for Spanish renewable energy developer Corporacion Acciona Energias Renovables (ANE) was reduced by 9%, from €35 to €32. This adjustment is a result of lower electricity prices achieved in the short term.