Ferrari's Rise: Leading the Car Value Revisions

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【Summary】Ferrari's fair value estimation has increased the most, followed by Mercedes-Benz, Volkswagen, and Renault. The upward revisions are due to good quarterly results. Hermes International and L'Oreal have also seen their fair value revised upwards. ING Group's fair value has increased, while Kone Oyj's fair value has decreased due to a decline in market activity in China. The fair value for Corporacion Acciona Energias Renovables has also been reduced due to lower electricity prices.

FutureCar Staff Aug 18, 2023 7:55 AM PT

Ferrari's Rise: Leading the Car Value Revisions

July is typically the month when companies report their quarterly earnings. Morningstar's equity analysts are currently 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 months of June and July, the analysts revised the fair value estimations for 42 companies. The overall tone of the revisions is positive, with 30 upward revisions and 12 downward revisions.

Among the stocks that experienced significant upward changes is Ferrari (RACE), whose fair value estimation increased from €190 to €257. In the second quarter, the Italian carmaker exceeded expectations by posting diluted earnings per share of €1.83, up from €1.36 the previous year. Ferrari also adjusted its full-year sales forecast from €5.7 billion to €5.8 billion.

Other carmakers also had their fair value estimations revised. Mercedes-Benz (MBG) saw an increase from €109 to €111, while Volkswagen (VOW3) had a slight increase from €338 to €344. Renault's (RNO) target price also went up by €1, from €86 to €87. These revisions are due to good quarterly results and can be further explored on Morningstar's website.

Two of the largest French companies, Hermes International (RMS) and L'Oreal (OR), also had their fair value estimations revised upwards. Hermes International experienced a 28% increase, from €990 to €1,270, thanks to strong revenue growth and improved profitability in the first half of 2023. Jelena Sokolova, the sector analyst, explains that their fair value increase is primarily driven by reduced assumptions for the firm's cost of capital. L'Oreal's fair value estimate was raised to €376 from €336, driven by a higher annual sales growth forecast.

In the banking sector, the fair value of Dutch ING Group (ING) was increased from €17 to €19 euros. This is equivalent to 1.5 times ING's tangible book value in 2021 and 11 times the estimated earnings for 2023. However, there were also fair value reductions, such as the Finnish company Kone Oyj (KNEBV), which saw its fair value decrease from 56 euros to 48 euros. The decline in market activity in China, the largest market for new lift equipment, has affected Kone's performance.

Another fair value reduction occurred for the Spanish renewable energy developer, Corporacion Acciona Energias Renovables (ANE). Its fair value was reduced by 9%, from €35 to €32, due to lower electricity prices achieved in the short term.