By Ian Salisbury
Not just anyone can buy a Ferrari. The Italian sports-car maker has long aimed to foster its image of exclusivity by selling fewer cars than the market demands. It's a strategy that limits sales growth but shields Ferrari from booms and busts.
Ferrari stock is up nearly 43% year to date to $484. In a recent note, J.P. Morgan says the stock could hit $525 by next December. Ferrari's strength contrasts with other luxury car brands, including Mercedes, BMW, and Porsche, slowed by weak Chinese demand. Ferrari sells less than 10% of its cars in China, notes J.P. Morgan, sacrificing potential growth to maintain exclusivity. As founder Enzo Ferrari famously said, "Ferrari will always deliver one less car than the market demands."
Ferrari sells only about 14,000 cars a year. Profit growth comes from improving margins, with some new models selling for 20% to 30% more than previous versions. Ferrari customers don't seem to mind, and unmet demand makes it easy for Ferrari to shift deliveries from China to other markets.
That said, Ferrari shares trade at 58 times earnings, just below Tesla's 62 and an order of magnitude above Mercedes-Benz Group at five. "In one indication that the pace of innovation had begun to accelerate, Ferrari has filed more patents in the last three years than in its first 74," notes J.P. Morgan. But patents won't save Ferrari if the next generation of car enthusiasts are more interested in computing power than big, loud engines.
Write to Ian Salisbury at ian.salisbury@barrons.com
Last Week
Markets
China unveiled cuts in benchmark lending rates. Gold set new highs, and bond yields, the dollar, and Bitcoin rose. Tesla beat on earnings, sending shares higher and igniting a rally. On the week, the Dow industrials lost 2.7%, the S&P 500 fell 1% -- both ending six-week win streaks -- and the Nasdaq Composite rose 0.2%.
Companies
McDonald's shares plunged after an outbreak of E. coli was traced to the chain's Quarter Pounders. Onions may be the culprit. Boeing workers rejected a 35% pay hike over four years as the company took a $6 billion loss. Former Morgan Stanley CEO James Gorman, slated to become Walt Disney's chairman in January, will lead the effort to replace CEO Bob Iger. The deadline: early 2026. Starbucks suspended financial guidance a week ahead of earnings. Taiwan Semiconductor said its chips were found in sanctioned Huawei phones. The Wall Street Journal reported that Elon Musk has been talking to Vladimir Putin since 2022.
Deal
Activist Starboard Value took a stake in Johnson & Johnson's consumer-products spinoff Kenvue...Faced with public criticism, the French government will buy a 2% stake in Opella, Sanofi's former consumer products unit, which Clayton Dubilier & Rice is in talks to acquire...The WSJ reported that Frontier Airlines is considering a new bid for the struggling Spirit Airlines...A federal judge blocked Tapestry's $8.5 billion acquisition of rival Capri Holdings on antitrust grounds.
Next Week
Tuesday 10/29
Big Tech takes center stage as five of the Magnificent Seven release earnings. Alphabet is first out of the gate, announcing quarterly results after the closing bell on Tuesday, followed by Meta Platforms and Microsoft on Wednesday. Amazon.com and Apple report their earnings on Thursday.
Outside the tech sector, Visa reports earnings on Tuesday, AbbVie and Eli Lilly on Wednesday, and Mastercard on Thursday. Chevron and Exxon Mobil close out the week on Friday.
Thursday 10/31
The Bureau of Economic Analysis releases the personal consumption expenditures price index for September. Economists forecast a 2.1% year-over-year increase for the PCE price index, one-tenth of a percentage point less than in August. The core PCE, which strips out food and energy prices, is expected to rise 2.6%, after a 2.7% gain previously.
Friday 11/1
The Bureau of Labor Statistics releases the jobs report for October. Consensus estimate is for a 110,000 increase in nonfarm payrolls, after a 254,000 gain in September. The unemployment rate is expected to remain unchanged at 4.1%. Hurricanes Helene and Milton, which hit the Southeast in late September and early October, could distort the data.
The Numbers
$33 B
Record amount of share buybacks by Chinese companies this year so far, more than twice last year's total.
249%
The increase in the number of so-called fast wildfires in the U.S. between 2001 and 2020.
2.5%
IMF estimate for U.S. 4Q gross domestic product, half a percentage point above the July forecast.
3.84 M
Estimate of U.S. existing-home sales in 2024, the worst since 1995 -- for the second year in a row.
Write to Robert Teitelman at bob.teitelman@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
October 25, 2024 19:51 ET (23:51 GMT)
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