Ferrari Tempers 2020 Expectations With Cautious Upgrade

Today’s Stock Market News — Demand for Ferrari’s Portofino and 812 Superfast models helped the Italian supercar maker hit profit targets for last year though it only a provided cautious upgrade to its outlook for 2020.

Ferrari (NYSE:RACE) said it planned to boost adjusted earnings before interest, tax, depreciation and amortization (EBITDA) to 1.38 billion-1.43 billion euros this year above a previous target 1.3 billion euros given in 2018, disappointing some.

Ferrari shares were 1.4% lower at on the Milan stock exchange by 1335 GMT at 152.1 euros, though that was still near a record high of 158.7 euros hit less than two weeks ago.

Morgan Stanley analysts said the outlook was slightly below market expectations though they did not expect a material reaction in the share price, which has been riding high.

Ferrari shares have more than trebled since it listed in 2016 as the brand famed for its racing pedigree clocked up a string of strong results and boosted its profit margins to above 30%, a return most carmakers only dream of.

Rival Aston Martin, for example, has a margin below 7% while Porsche, which is owned by Germany’s Volkswagen (DE:VOWG_p), as an operating margin of about 17%.

Ferrari – which is controlled by Italy’s Agnelli family through Exor – said adjusted EBITDA rose 22% in the last quarter of 2019 to 333 million euros ($368 million), just missing a forecast of 340 million in a Reuters poll.

Net revenues rose 10% in the fourth quarter to 927 million euros.

Deliveries to Europe, Middle East and Africa – by far its biggest market – jumped 29%, more than offsetting a 25% drop in the Americas and a slump of 65% in China, Hong Kong and Taiwan, which accounts for about 8% of revenue.

Its fourth quarter results left 2019 profit at 1.269 billion euros, in line with an estimate of about 1.27 billion the company gave in November. Its adjusted core profit margin came in at 33.7% versus a target of 34%.

After releasing a record five new models last year – including the F90 Stradale, the Prancing Horse’s first mass production hybrid – Ferrari is set to slow the roll-out of new cars in the coming years.

Ferrari had said it planned to launch 15 models between 2019 and 2022, while achieving a significant increase in their average retail price.

In a bid to extract even more growth, Ferrari last year launched a plan to enhance its brand through new clothing and accessory collections, entertainment offers, and other luxury products and services for clients.

The strategy includes a manufacturing agreement with Italian fashion house Giorgio Armani and the opening of a restaurant with Michelin-starred chef Massimo Bottura in the group’s hometown of Maranello in northern Italy in late 2022.

Goldman Sachs Estimates Modest Hit To 2020 Global Growth From Coronavirus

Today’s Stock Market News — Goldman Sachs says 2020 global growth will take a modest hit from the outbreak of coronavirus, assuming an aggressive response from authorities in China and elsewhere to bring the rate of new infections down sharply by the end of the first quarter.

Annual-average global GDP growth in 2020 will be downgraded by 0.1 to 0.2 percentage points, the bank estimated.

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Best Stock Market Sectors For 2020

StockMarketNews.Today — After another big year for the stock market and the U.S. economy in 2019, investors are looking ahead to 2020 to determine which sectors will lead the next phase of the decade-long bull market. The technology sector has once again been the top-performing sector in 2019, while energy lagged behind the field. In 2020, analysts see more room for upside ahead in select market sectors.

Top-Performing Market Sectors of 2020.  ( By Savita Subramanian )

The Financial Select Sector SPDR (XLF) exchange-traded fund gained 29.8% in 2019, and Subramanian is anticipating another big year from the sector in 2020. Subramanian says the sector is much less credit-sensitive in 2020 than it was during the financial crisis and has seemingly gotten little recognition in the market for dramatic improvements in quality and cash returns.

Despite the sector’s relatively high quality and yield, the financial sector trades at the steepest forward earnings multiple discount to the S&P 500 of any sector.

Bank of America has an “overweight” rating for the financial sector.

Even after the Industrial Select Sector SPDR ETF (XLI) gained 26.6% in 2019, Subramanian says the industrial sector trades at a recession-level earnings multiple.

She says industrials could re-rate to a higher valuation in 2020 if the economy remains strong, trade risks ease, capital expenditures ramp and the Institute of Supply Management’s Purchasing Managers Index bottoms. In addition, the climate of elevated geopolitical tensions with China, the Middle East and other regions should support the U.S. defense budget in the near term, a positive backdrop for industrials.

Bank of America has an “overweight” rating for the industrial sector.

The Technology Select Sector SPDR ETF (XLK) gained 45.3% in 2019, beating all other market sectors by more than 15%.

In a technology-driven world, Subramanian says the tech sector will once again be a solid performer in 2020. However, after such a strong run in 2019, Subramanian says its prudent for investors to dial back their exposure and keep expectations realistic in 2020. If the recent rotation to value stocks carries over into next year, she says high-flying software stocks could be hit especially hard.

Bank of America has a “market-weight” rating for the technology sector.

Communication Services
Three of the top holdings in the Communication Services SPDR ETF (XLC) are “FANG” stocks Alphabet (GOOG, GOOGL), Facebook (FB) and Netflix (NFLX).

Subramanian says the FANG group will likely continue to face regulatory scrutiny related to user data in 2020, but likely not as much as in 2019. At the same time, the 2020 U.S. election should provide a shot in the arm for both online and traditional advertising. Subramanian says the sector offers investors both yield and growth, a rare combination in today’s market.

Bank of America has a “market-weight” rating for the communication services sector.

Health Care
The health care sector is currently trading at about an 11% forward earnings multiple discount to the overall S&P 500, well below its historical 11% premium.

Subramanian says the sector has both a compelling valuation and impressive fundamentals. Unfortunately, health care stocks did not fare well during the last election season in 2015 and 2016 due to policy uncertainty. Subramanian says election-related headline risks will be elevated in 2020, but passage of disruptive policies such as Medicare for All appears to be unlikely.

Regardless, Bank of America has a “market-weight” rating for the health care sector.

After another year of underperformance in 2019, the Energy Select Sector SPDR ETF (XLE) is now down 20.1% overall over the past five years.

Fortunately, Subramanian says the extended weakness has created deep value in the space heading into 2020. In addition, she says exploration and production companies are focusing more on cash flow and shareholder returns than production growth. Stock selection within the sector is growing increasingly important given younger investors’ preference for companies with environmental, social and governance (ESG) awareness.

Bank of America has a “market-weight” rating for the energy sector.

The Utilities Select Sector SPDR ETF (XLU) gained 21.6% in 2019. Subramanian says utility stocks provide a great source of yield for investors, and the predictability of utility earnings make the sector relatively immune to macroeconomic instability.

The sector’s current dividend payout ratio is roughly in line with its historical average, suggesting payouts are sustainable but yield upside is limited. Unfortunately, the sector’s relative valuation compared to the overall S&P 500 is about 20% higher than its historical average, potentially capping valuation upside.

Bank of America has an “overweight” rating for the utilities sector.

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One thought on “Ferrari Tempers 2020 Expectations With Cautious Upgrade

  1. Pingback: Ferrari Tempers 2020 Expectations With Cautious Upgrade via /r/economy | Chet Wang

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