HSBC cuts Ferrari (RACE) to Hold, upgrades Porsche on China exposure

HSBC Global Research downgraded Ferrari (NYSE: RACE) to a Hold rating (From Buy) and raised their 12-month price target on the luxury auto stock to $340.00 (From $325.00) as analysts believe consensus for 2024 appears “stretched” and the potential for an earnings surprise appears limited.

At the same time, HSBC upgraded rival luxury automaker, Porsche AG to a Buy rating (From Hold) and cut their 12-month price target on the stock to $100.00 (from $110.00) following the company’s recent price correction.

During economic downturns, luxury items often serve as a secure haven for investors, particularly within cyclical industries such as automobiles. However, a weakening demand for luxury autos in China, and anecdotal pricing pressure news have pressured some auto stocks, including Porsche.

On the other hand, Ferrari has been the best performing auto stock YTD, with Stellantis (NYSE: STLA) coming in just behind them.

Ferrari’s 2024 cons. EBIT is already at the lower end of the 2026 target range and, according to the company’s 3Q earnings call, revised mid-term targets are unlikely before 2025. Therefore, analysts at HSBC find it difficult to see meaningful upgrades. Meanwhile, they believe the company’s valuation appears fair.

Porsche is currently afflicted by negative sentiment in China and pricing news, causing some downward pressure. However, these risks seem to have been anticipated and already factored into the pricing. If Porsche manages to demonstrate a QoQ improvement in 4Q margins, displaying increased resilience, the sentiment might reverse.

“By virtue of its low China exposure, Ferrari is the best positioned luxury auto stock to face a weak market. Porsche’s large China exposure is in line with its German peers and likely the most important reason for its de-rating since August.” Wrote HSBC analysts in a note.

However, HSBC analysts added that they see this as a “manageable risk” under the condition that Porsche maintains its focus on the 'value over volume' strategy. This approach involves actively reallocating production originally intended for China to other regions with robust demand, ensuring continuity and stability in their operations.

Shares of RACE are down 1.13% in pre-market trading on Wednesday.

By Michael Elkins | [email protected]

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