Ferrari's Rise in Value

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【Summary】Ferrari's fair value estimation has been revised upwards, as the carmaker exceeded earnings expectations and adjusted its sales forecast. Other carmakers, such as Mercedes-Benz, Volkswagen, and Renault, also saw increases in their fair value. Luxury companies Hermes International and L'Oreal also had their fair value estimates raised.

FutureCar Staff Aug 14, 2023 6:17 AM PT

July is typically the month when companies release their quarterly earnings reports. 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 diving into the entire European universe. 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 notable stock that experienced a significant upward change is Ferrari (RACE), with its fair value estimation increasing from €190 to €257. Ferrari's second-quarter diluted earnings per share of €1.83 exceeded the FactSet consensus of €1.73, representing a €0.47 increase from the previous year. The company also adjusted its full-year sales forecast upward from €5.7 billion to €5.8 billion.

Other carmakers have also seen their fair value estimations revised. 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 also went up by €1, from €86 to €87. These revisions reflect the strong quarterly results and positive performance of these companies. More information about why these car manufacturers are undervalued can be found on Morningstar's website.

In addition to the automotive industry, luxury brands like Hermes International (RMS) and L'Oreal (OR) have also had their fair value estimations revised upwards. Hermes International experienced a 28% increase, raising its fair value from €990 to €1,270. This was driven by strong revenue growth and improved profitability in the first half of 2023. Jelena Sokolova, a sector analyst, explained that the increase in fair value primarily stems from reduced assumptions for the firm's cost of capital. L'Oreal's fair value estimate also increased to €376 from €336, supported by 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 valuation represents 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 fair value reduction from 56 euros to 48 euros. The decline in market activity in China, which is a crucial market for Kone, contributed to this reduction. Similarly, the fair value for Corporacion Acciona Energias Renovables (ANE), a Spanish renewable energy developer, was cut by 9% from €35 to €32 due to lower short-term electricity prices.