Morgan Stanley Downgrades Ferrari, Citing Brand Preservation Strategy and Limited Near-Term Upside

Morgan Stanley has reduced its rating for the Italian luxury car manufacturer Ferrari NV (BIT:RACE) from "overweight" to "equal-weight" and lowered its price target from $520 to $425. The downgrade is attributed to limited potential for near-term stock appreciation, as the company prioritizes maintaining brand exclusivity over boosting sales volume, a strategy the analysts view as favorable for long-term brand equity but restrictive to immediate revenue expansion. Concerns from investors—which Morgan Stanley finds "generally fair"—center on three main issues: medium-term forecasts that fell below expectations, ongoing pressure on resale values in the secondary market, and risks related to the launch of Ferrari's first electric vehicle in late 2026.

Shares of the Maranello-based company have already dropped 17% in euros this year, with the forward price-to-earnings ratio decreasing from 46x to 38x. Morgan Stanley projects that Ferrari's constant currency sales growth in fiscal year 2026 will be 6.4%, falling short of the consensus estimate of 8.2%, with performance weighted heavily toward the end of the year due to product transition timing. The firm forecasts that Ferrari will ship approximately 13,900 units in fiscal 2026, implying a modest compound annual growth rate (CAGR) of just 1.5% through 2030, a sharp slowdown compared to the 6% CAGR observed between 2012 and 2022.

The Cars and Spare Parts division, which accounts for 84% of total group sales, is expected to see growth of only 3% in the first quarter, as the phase-out of prominent models like the Daytona SP3 and SF90 Spider will not be immediately offset by new launches reaching "full production steam until the end of the year." Notably, the new F80 supercar, succeeding the LaFerrari and priced at €3.6 million, is forecast to ship only 170 units in fiscal 2026, generating approximately €200 million in incremental revenue that year, with initial shipments of 5 units beginning in the fourth quarter of 2025.

Overall, the analysts project fiscal 2026 EBIT (Earnings Before Interest and Taxes) to be €2.2 billion, which is about 4% below the consensus estimate of €2.3 billion, resulting in an expected EBIT margin of 29.6%. They anticipate Selling, General, and Administrative expenses will rise from 8.8% to 9% of revenues due to costs associated with the busy product launch schedule. Furthermore, the Sponsorship, Commercial and Brand division, which is tied to the Formula 1 team's performance, faces challenges as the team ranks fourth in the 2025 season (down from second in 2024), leading to a projected moderation in the division's growth to 8% in fiscal 2026, down from an estimated 24% in fiscal 2025. The $95 reduction in the price target is partially due to a roughly 5% cut in fiscal 2026-2027 earnings per share estimates, but is mainly driven by a shift in the valuation method, moving from a 15-year Discounted Cash Flow (DCF) model to a shorter 10-year DCF model with a 4.5% terminal growth rate to "reduce long-range forecasting uncertainty."