Ferrari's Rise in Car Value
【Summary】Ferrari's fair value estimation has been revised upward, along with other carmakers Mercedes-Benz, Volkswagen, and Renault, due to positive quarterly results. Luxury companies Hermes International and L'Oreal have also seen their fair value revised upwards. The fair value of Dutch bank ING Group has increased, while Finnish manufacturer Kone Oyj's fair value has decreased.
July is a significant month for companies as they report their quarterly earnings. Morningstar's equity analysts are currently reviewing the fair value estimations for the stocks they cover.
Last week, we discussed the fair value of UK stocks, and today we are focusing on the entire European universe. Our analysts have made revisions to the fair value estimations for 42 companies between June and July. The overall tone is positive, with 30 upward revisions and 12 downward revisions.
Among the stocks, Ferrari (RACE) experienced the largest upward change in estimation, increasing from €190 to €257. The Italian carmaker exceeded expectations in the second quarter, reporting diluted earnings per share of €1.83, which was higher than the FactSet consensus of €1.73. Additionally, their full-year sales forecast was adjusted from €5.7 billion to €5.8 billion.
We have also revised our target prices for other carmakers. Mercedes-Benz (MBG) now has a fair value of €111, up from €109. Volkswagen (VOW3) saw a slight increase in fair value from €338 to €344 euros, and Renault's (RNO) target price increased by €1, from €86 to €87. If you would like more information on why these car manufacturers are considered undervalued, you can find it on our website.
The reason behind these upward revisions is the strong quarterly results achieved by these companies. Mercedes-Benz reported second quarter earnings per share of €3.34, surpassing the previous year's earnings. Renault also performed well, with earnings per share of 7.59 euros, an increase of 5.28 euros compared to last year. Volkswagen, although falling below investor expectations in the second quarter, saw consolidated revenues rise by 15% to €80.1 billion, surpassing expectations.
Shifting focus from cars, two major French companies, Hermes International (RMS) and L'Oreal (OR), have also seen their fair value estimations revised upwards. Hermes International experienced a 28% increase, from €990 to €1,270, due to strong revenue growth and improved profitability in the first half of 2023. Jelena Sokolova, our sector analyst, explains that the increase in fair value is primarily driven by reduced assumptions for the company's cost of capital, reflecting Hermes' resilience to economic cycles and low financial leverage. Our fair value implies a multiple of 35 times 2023 estimated earnings, still below the market multiple of 50 times earnings. For L'Oreal, we have raised our fair value estimate to €376 from €336, driven by a higher annual sales growth forecast, partially offset by slightly lower operating margins.
In the banking sector, we have only increased the fair value of Dutch ING Group (ING) from €17 to €19 euros. This value is equivalent to 1.5 times ING's tangible book value in 2021 and 11 times our estimated earnings for 2023.
However, there have been fair value reductions as well. Kone Oyj (KNEBV), a leading manufacturer of elevators and escalators, has seen its fair value decrease from 56 euros to 48 euros. Grant Slad, the analyst covering the company, explains that the decline in market activity in China, the world's largest market for new lift equipment, has continued in the second quarter. Although there are no signs that recent Chinese policy measures will revive the sector, the pace of decline has eased compared to the first three months of 2023.
We have also reduced our fair value for Spanish renewable energy developer Corporacion Acciona Energias Renovables (ANE) by 9%, from €35 to €32. This adjustment is due to lower electricity prices achieved in the short term.
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