Ferrari NV (NYSE:RACE) stock fell 1.42% (As on July 6, 11:35:06 AM UTC-4, Source: Google Finance) after Jefferies analyst Philippe Houchois upgraded to ‘Hold’ from ‘Underperform’. The analyst also raised the price target RACE to €170.00 (from €130.00). The upgrade move comes after management addressed the analyst’s concerns about balancing growth, investment spending and intellectual property. New mid-term targets point toward double-digit earnings growth through 2026, stabilized ROIC, and raised cash returns. With powertrain IP critical to Ferrari’s position and valuation multiples, the analyst found the capex guidance and investment to vertically integrate motors, inverters and battery modules as positive. With a 5 year product plan of 15 launches, similar to the 2018-22 period, the analyst also noted a stop to model “proliferation” which in the analyst’s view contributed to the drift in invested capital. In the end, the numbers suggest an end to ROIC deterioration but not a return to earlier peaks.

For the second quarter, Houchois is calling for 3,350 units (+25%) and an average selling price of €210,000. This should result in revenues of €1.22 billion, EBITDA of €432 million and EBIT of €307 million. On a more negative note, the analyst reminds investors that Ferrari’s valuation is “still full.” Ferrari shares mostly drifted in recent years but effectively rerated despite falling returns, which in the analyst’s view leaves little scope to further re-rating. On ’23 JEFe Ferrari is trading on 6.2x EV/sales, 26x EBIT, 34x earnings (cash R&D) and >60x FCF. Oft used benchmark Hermes is trading on 25x and 37x EBIT, with higher ROIC (Factset consensus). ROIC profile and F1 profitability are the main sources of upside in the analyst’s view, as per Houchois.

Meanwhile, the company has recently announced that it intends to commence a Euro 150 million share buyback program, as the initial tranche of the new multi-year share buyback program of approximately Euro 2 billion expected to be executed by 2026 in line with the disclosure made during the 2022 Capital Markets Day (the “First Tranche”). The First Tranche will start on July 1, 2022 and will end no later than November 30, 2022. The First Tranche will be funded through the Company’s available cash and common shares repurchased under the First Tranche may be used to meet the obligations arising from the Company’s equity incentive plan.