Ferrari N.V. (NYSE:RACE) Earnings Model
Ferrari Modeling Approach
Revenue Modeling Approach: This model breaks down Ferrari’s results by the company’s primary segments: Cars & Spare Parts, Engines, Sponsorship, and Other. Since the Cars & Spare Parts Segment is the primary driver of overall earnings, we focus on this section and further break results down into estimates of the number of cars sold and average selling price per car. For the remaining segments we apply a basic quarter-over-quarter growth rate to revenue.
Currency Translation: Management primarily discusses operating results in EUR, but we value shares in USD. To overcome this hurdle, we model earnings in EUR terms and translate the results back to USD before calculating the final share valuation.
Expense Modeling Approach: We use historic Gross Margin percentage to project future period Cost of Goods Sold. We use ratios for the two primary operating expense line items: Selling General & Administrative, and Research & Development costs as a percentage of revenue, and apply a historic average to Other Income/(Expenses). To estimate future income tax expense, we apply an effective tax rate to future period earnings before tax.
Share Count Forecast: To forecast the future share count we calculate the historic change in share count, and apply similar changes in future periods.
Valuation Approach: We utilize a market multiple based valuation approach, specifically a Price-Earnings Multiple which we apply to the Next Twelve Month consensus EPS estimate, on an exCash/(Debt) basis.
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