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Why Shares of Ferrari Raced 12% Higher on Thursday

By John Rosevear – Updated Apr 25, 2019 at 8:31PM

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Strong earnings plus upbeat guidance equals happy investors.

What happened

Forza Ferrari! Shares of Ferrari N.V. (RACE 4.80%) raced sharply higher on Thursday after the Italian exotic-car maker released a strong earnings report and gave upbeat guidance for 2019. 

Ferrari's shares closed at $126.30 in New York on Thursday, up 12% on the day. 

So what

The number that grabbed the headlines on Thursday morning was 47%, the increase in Ferrari's net income for 2018. Much of that was due to a tax break in Ferrari's native Italy, but the deeper numbers were still strong. Ferrari booked an 8% increase in earnings before interest, tax, depreciation, and amortization (EBITDA) for the full year, on a 10% increase in vehicle shipments. 

A yellow Ferrari 812 Superfast, a two-seat front-engined sports car, parked on a mountain road.

A loaded Ferrari 812 Superfast can cost half a million dollars -- but despite the price tag, demand has been very strong. Image source: Ferrari N.V.

A closer look at the vehicles it sold revealed more good news. While all Ferraris are very expensive (and very profitable) by auto standards, some are more profitable than others. Ferraris with V12 engines cost more and generate more profit than those with V8s -- and sales of V12-powered Ferraris rose almost 20% last year, thanks to big demand for the fierce 812 Superfast. 

The result: an operating margin of 24.1%, absolutely astounding by auto standards. 

Now what

A look ahead revealed even more good news for investors: CEO Louis Camilleri expects 2019 to be another strong year for the Prancing Horse, as the company gears up to introduce five new models. 

Ferrari's financial guidance for 2019 calls for just a modest increase in revenue, but that's not a surprise, as the company limits its sales to preserve its pricing power. The good news is that its pricing power is on the rise: Ferrari anticipates that improvements to its already-spectacular margins will yield another 10% increase in EBITDA in 2019, along with a similar jump in free cash flow.

Check out the latest Ferrari earnings call transcript.

John Rosevear has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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