Ever-evolving customer preferences, next-gen connectivity and cutting-edge design are reshaping the luxury automotive industry. The rising wealth of top earners in the U.S. and growing populations and wealth in Asia in countries including China and India, are creating a huge market for luxury automobiles. The global market for luxury cars is projected to grow at a CAGR of 9.3% over the next seven years to hit $655 billion by the end of 2027.
The increasing demand for custom, hand-built, limited-edition luxury vehicles and classic cars should drive the growth of companies in this sector.
Luxury car manufacturers Daimler AG (DDAIF) and Ferrari N.V. (RACE) already offer models that are customized for a particular socio-economic class based on income and standard of living. We expect these two stocks to deliver solid returns going forward.
Daimler AG (DDAIF)
Based in Germany, DDAIF is one of the world’s most successful automotive companies. With its Mercedes-Benz Cars & Vans, Daimler Trucks & Buses and Daimler Mobility divisions, the Group is one of the leading global suppliers of premium cars and manufacturer of commercial vehicles.
Last December, DDAIF’s Mercedes-Benz production network announced the launch of six new Mercedes-EQ Models by 2022. By 2022 the company’s portfolio will include eight all-electric Mercedes-EQ models. With this electrification of the entire product portfolio, Mercedes-Benz is targeting leadership in electric drives and vehicle software. This strategic move is intended to make Mercedes-Benz a leading player in the field of e-mobility.
Earlier this month, DDAIF announced its intention to split its industrial businesses and establish two strong and independent pure-play companies. If this plan materializes soon, the company will be able to operate more effectively, equipped with stronger net liquidity and free from the constraints of a conglomerate structure.
DDAIF’s third quarter results demonstrated its comprehensive efforts regarding cost control and cash management. The company’s EBIT increased 14.1% year-over-year to €3.07 billion in the third quarter ended September 30, 2020, while its EPS increased 19.3% to €1.92 over the same period. Its free cash flow has risen 82.3% from the year-ago value to €5.14 billion over the three-month period.
Analysts expect DDAIF’s revenues to grow 1.7% year-over-year in the about-to-be reported quarter (ended December 31, 2020). A consensus EPS estimate for the fourth quarter represents a 403.6% improvement year-over-year. The stock has gained 68% over the past year.
DDAIF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
DDAIF has a B grade for Growth, Value, Sentiment, and Stability. Within the Auto & Vehicle Manufacturers Industry, it is ranked #4 of 52 stocks.
In total, we rate DDAIF on eight different levels. Beyond what we stated above, we also have given DDAIF grades for Momentum and Quality. Get all DDAIF’s ratings here.
Ferrari N.V. (RACE)
Based in Italy, RACE is among the world’s leading luxury brands focused on the design, engineering, production, and sale of luxury performance sports cars. The company offers sports, GT, and special series cars, limited edition hypercars, Fuori series, one-off, and track cars, and Icona cars.
Last December, Ferrari was ranked among the global leaders in environmental performance and transparency in the annual report published by CDP (Carbon Disclosure Project). Ferrari was awarded an A- rating, ranking it much higher than both the European regional average and the sector’s average for actions implemented to combat climate change.
In November, the RACE’s 488 GT Modificata model was unveiled at Maranello. This limited-edition car incorporates the latest innovations, skills and technologies developed from the 488 GT3 and 488 GTE.
RACE reported total shipments of $2,679 units, up 13.2% year-over-year in the fourth quarter ended December 31, 2020. The company’s net revenues have increased 15.3% from the year-ago value to €1.07 billion, while its EBITDA has risen 11.7% to €372 million over the same period. Its EPS has improved 57.8% to €1.42 over the three-month period.
Analysts expect RACE’s revenues to grow 33.3% year-over-year in the quarter ending March 31, 2021. A consensus EPS estimate for the current quarter represents a 38.9% improvement year-over-year. RACE has gained 16.6% over the past year.
RACE has a B grade for Quality and Stability in our POWR Ratings system. In the same industry, it is ranked #23.
Click here to see the additional POWR Ratings for RACE (Sentiment, Value, Growth, and Momentum).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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DDAIF shares were unchanged in after-hours trading Thursday. Year-to-date, DDAIF has gained 15.43%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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