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What Could Affect Ferrari’s Valuation Multiples in Q2?

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May. 9 2019, Published 3:16 p.m. ET

Ferrari’s EV-to-EBITDA multiple

As of May 8, Ferrari’s (RACE) forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple was 19.7x. This multiple was calculated based on the company’s estimated EBITDA for the next 12 months. This multiple was lower at 16.9x six months ago.

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Comparison with peers

Ferrari’s EV-to-EBITDA multiple was significantly higher than other auto companies like General Motors (GM), Fiat Chrysler (FCAU), and Toyota (TM). GM’s, FCAU’s, and Toyota’s EV-to-EBITDA multiples were at 8.8x, 1.9x, and 9.4x, respectively.

Likewise, Ferrari’s forward PE multiple was 33.9x, which was also much higher than other legacy automakers. Ferrari’s highly profitable business model with a relatively low-risk profile compared to those of other auto giants could be one of the reasons that justify its higher valuation multiples. Luxury cars tend to have much higher profit margins for auto companies than other mass-market vehicles.

Factors to watch in Q2 2019

In 2018, Ferrari continued to demonstrate its ability to revive V12 engine car sales with the help of newly launched attractive car models. However, discontinuation of some of its limited series cars including LaFerrari Aperta hurt its product mix in the first quarter of 2019.

Prolonged weakness in Ferrari’s product mix due to lower contribution of its V12 engine car sales could affect its profit margins going forward, which should have a negative impact on its future growth estimates and valuation multiples.

On the positive side, Ferrari reported solid growth in its global shipments in the first quarter, especially in China, which should keep investors’ optimism alive going forward.

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