This Is Why George Soros Likes Ferrari Stock
There are no reports of George Soros owning an actual Ferrari automobile, but the billionaire financier’s Soros Fund Management bought a more than $31.0-million stake in Ferrari N.V. (NYSE:RACE). Ferrari stock raced 9.4% higher, just as the company ticker says it does. Ferrari stock was trading at $38.92.
Soros’ entry into Ferrari has restored investors’ confidence in the carmaker, which, until last October, had been the jewel in Fiat Chrysler Automobiles’ crown. Since the initial public offering (IPO) and the roar of its market debut, Ferrari stock has lost a third of its market value. Soros’ sense for a good bargain surely influenced his decision to get Ferrari stock while it’s trading at a discount.
Yet, Ferrari stock has dropped mostly because of overall market volatility; it has little to do with the company’s actual performance in dealerships.
When it comes to sales, luxury car brands like Ferrari remain vulnerable to the Chinese market. Last year, Ferrari sales in China suffered a 22% drop. Ferrari is one of the world’s top automotive sector stocks. Its current value already accounts for a worst-case scenario.
During 2015, Ferrari delivered 7,664 cars, six percent more than in 2014, which was a record year. However, the company has some $2.0 billion in debt, which has tarnished Ferrari stock’s performance. Analysts had expected no more than $1.7 billion.
Ferrari expects to sell even more cars next year. It has a sales target of 7,900 registrations. Moreover, the recently unveiled Ferrari “GTC4 Lusso,” which replaces the FF, should attract many new buyers—especially in China. The car is easier to drive than other Ferrari models, just as fast, and is equipped with four-wheel drive.
The Soros investment firm reported a 0.45% stake in the company, or 850,000 shares, at the end of 2015, according to Bloomberg reports. Soros can now boast owning the ninth-largest stake, about 0.5%, in Ferrari. Exor-holding Ferrari founder Enzo Ferrari and his son, Piero Ferrari, together hold 34% of the carmaker’s capital. They also own almost 50% of the voting rights.
UBS reiterated its “Buy” rating for Ferrari N.V. with a $48.00 price target on RACE stock. Bank of America Merrill Lynch also has a “Buy” rating on the company with a price target of $56.00.
On December 4, the Fiat Chrysler Automobiles (FCA) board members are expected to vote in favor of Ferrari stock’s spin-off, which, in the order of things, is the second step on the company’s path to its full independence after listing last October. The third and final step will be the distribution of Ferrari stock to FCA shareholders in January. By the end of that month, Ferrari President and FCA CEO Sergio Marchionne says, “you will see the true value [of Ferrari].” (Source: “Ferrari: Marchionne, vero valore si vedrà dopo spin-off,” Il Sole 24 Ore, November 30, 2015.)
In 2014, Ferrari sold 7,255 models, with revenues of $2.8 billion and net profit increased from $54.0 million a year earlier to $65.0 million. Sales may gradually increase, but as Marchionne explained, “To cite Enzo Ferrari, we will always sell one less Ferrari than the market wants. That’s a policy that will never change.” (Source: “UPDATE 2-Fiat Chrysler wants to collaborate with others on new vehicles – CEO,” Reuters, January 12, 2015.” Clearly, Marchionne is concerned more with maintaining the brand’s exclusivity.
Ferrari stock could get a further boost later in the year. The racecar maker will be one of the protagonists of the 2016 Formula One season, which opens on March 20 in Melbourne, Australia. Successes on the track could translate to successes on Wall Street. It is not by chance that Ferrari stock’s ticker is “RACE.”
Ferrari stock is now worth approximately $48.00 per share, about 13% lower than its IPO debut price. In addition to the proceeds from the IPO, of almost $900 million, Ferrari received a $2.8-billion credit line to refinance debt to FCA and for other business needs.