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Ferrari’s Profit Margins Could Continue to Expand in 4Q17

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Ferrari’s business operations

Ferrari (RACE) strives to stun its target consumers with state-of-the-art car designs and advanced technology. The company preserves exclusivity by producing cars in low volumes. The strategy also helps it maintain its high profitability. Also, Ferrari targets a niche of consumers from the high disposable income group. Despite negative economic scenarios, Ferrari maintains its industry-leading margins. Now, let’s look at analysts’ estimates for Ferrari’s 4Q17 margins.

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Recent trend

In 3Q17, Ferrari’s adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) stood firm at 266 million euros or ~$310 million. The company reported an EBITDA margin of 31.8% for 3Q17, which reflected an expansion from 29.3% in 3Q16.

Similarly, Ferrari’s adjusted EBIT margin expanded to 24.2% in 3Q17 from 22.0% in 3Q16.

Despite unfavorable currency exchange movement, higher sales of Ferrari’s cars with V12 engines, including the LaFerrari Aperta, helped boost its profits in 3Q17. Note that the V12 engine car models usually result in higher profits for the company compared to its cars with V8 engines.

In general, Ferrari’s profit margins tend to be much higher than legacy automakers (IYK) General Motors (GM), Fiat Chrysler (FCAU), and Ford Motor (F).

Estimates for 4Q17

Analysts expect Ferrari’s 4Q17 adjusted EBITDA margin to be 28.6%. It suggests a handsome expansion compared to its 4Q16 EBITDA margin of 26.8%.

For fiscal 2017, analysts expect an expansion in Ferrari’s adjusted EBITDA margin to 30.1% from 27.1% reported in fiscal 2016. The company’s solid brand image among motorsport enthusiasts worldwide could help it maintain the positive trend in its profit margins.

Ferrari’s 2017 profitability could continue to benefit from its strong portfolio of cars with V12 engines.

Next, we’ll discuss how Ferrari’s valuation multiples are trending before its 4Q17 earnings event.

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