Here's why Ferrari's stock can zoom past $500, Morgan Stanley says

By Claudia Assis

The iconic Italian automaker's stock has gained more than 40% this year, but Morgan Stanley sees more upside

Ferrari N.V.'s "resilient and proven business model" led Morgan Stanley on Tuesday to raise its price target on the luxury carmaker's stock to $520, among the highest forecasts on Wall Street.

The Morgan Stanley analysts, led by Adam Jonas, also kept the equivalent of a buy rating on Ferrari's stock (RACE). The $520 price target represents an upside of about 18% over Tuesday's share price.

"Ferrari's extremely low China exposure coupled with fierce brand loyalty stand out among luxury peers," the analysts wrote in a note. "No other major publicly traded luxury-goods company discloses both a higher repeat customer [percentage] and lower China mix."

For example, Hermès International (FR:RMS) has disclosed that it derives 54% of its adjusted profit from Asia-Pacific excluding Japan, and in the past it has told investors that 22% of e-commerce customers are repeat buyers, Morgan Stanley said.

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Ferrari shares have gained more than 43% so far this year, compared with an advance of 18% for the S&P 500 index SPX.

Ferrari derives less than 7% of its profit from China, the Morgan Stanley analysts noted.

"We are not aware of any other global luxury brand with anywhere near as low exposure to China as Ferrari," and investors appear to be willing to pay a premium for that, they wrote.

Read: Luxury-goods brands fear their golden goose - China - is cooked

Ferrari has a two-year order book, offering visibility into future sales, and most limited-edition launches sell out instantly, Morgan Stanley said.

The company also enjoys defensive qualities - having continued to generate cash in recent economic downturns, including the pandemic - and "superior pricing power," with its average selling prices still on the rise. Its electric vehicles also command a premium over its traditionally powered cars.

Read: Small cars are selling faster than SUVs and trucks. Here's what's driving more buyers to settle for less.

-Claudia Assis

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08-27-24 1301ET

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