Cars are Back: Morningstar’s Fair Value Changes in July

The
stock
with
the
biggest
upward
change
was
our
estimation
for
Ferrari
(RACE),
going
from
€190
to
€257.
In
the
second
quarter,
the
Italian
carmaker
posted
diluted
earnings
per
share
of
€1.83,
beating
the
FactSet
consensus
of
€1.73
–
and
up
€0.47
from
a
year
earlier.
Management
adjusted
its
full-year
sales
forecast
from
€5.7
billion
to
€5.8
billion.

We
have
also
revised
our
target
price
for
other
carmakers.
For
Mercedes-Benz
(MBG)
our
fair
value
has
been
increased
from
€109
to
€111.
Meanwhile,
Volkswagen
(VOW3)
saw
its
fair
value
increase
slightly
from
€338
to
€344
euros,
and
Renault’s
(RNO)
target
price
is
up
€1,
from
€86
to
€87.
You
can
read
more
about

why
many
of
these
car
manufacturers
are
undervalued
on
our
site.

The
reason
for
these
upward
revisions
is
as
simple
as
good
quarterly
results.
Mercedes-Benz
posted
second
quarter
earnings
per
share
of
€3.34,
up
from
last
year.
Renault
posted
earnings
per
share
of
7.59
euros,
5.28
euros
more
than
last
year
and
slightly
better
than
expected.
For
Volkswagen,
although
second
quarter
earnings
were
below
investor
expectations,
consolidated
revenues
rose
15%
to
€80.1
billion,
beating
expectations.

Luxury’s
Increased
Value

Moving
on
from
cars,
two
of
the
largest
French
companies
by
market
capitalisation,
Hermes
International
(RMS)
and
L’Oreal
(OR)
have
also
seen
their
fair
value
revised
upwards.
In
the
case
of
Hermes
International,
the
increase
was
28%
(from
€990
to
€1,270)
as
the
company
recorded
strong
revenue
growth
and
improved
profitability
in
the
first
half
of
2023.

Our
sector
analyst,
Jelena
Sokolova,
comments:
“although
we
increase
our
assumptions
for
full-year
profitability
slightly,
the
bulk
of
our
fair
value
increase
comes
from
our
reduced
assumptions
for
the
firm’s
cost
of
capital
[…].
We
believe
this
better
reflects
Hermes’
low
sensitivity
to
economic
cycles,
low
operating
leverage,
and
low
financial
leverage.
Our
fair
value
implies
a
multiple
of
35
times
2023
estimated
earnings,
still
well
below
the
market
multiple
of
50
times
earnings”. 

For
L’Oreal,
we
raised
our
fair
value
estimate
to
€376
from
€336,
driven
by
a
higher
annual
sales
growth
forecast.
This
has
been
partially
offset
by
slightly
lower
operating
margins.

What
About
Banking
and
Manufacturing?

In
the
banking
sector,
this
month
we
have
only
increased
the
fair
value
of
Dutch
ING
Group
(ING)
from
€17
to
€19
euros,
which
is
equivalent
to
1.5
times
ING’s
tangible
book
value
in
2021,
and
11
times
what
we
estimate
ING
will
earn
in
2023.

In
terms
of
fair
value
reductions,
the
Finnish
company
Kone
Oyj
(KNEBV),
one
of
the
world’s
leading
manufacturers
of
elevators
and
escalators,
stands
out.
Its
fair
value
falls
from
56
euros
to
48
euros.
The
analyst
covering
the
company,
Grant
Slad,
says:
“the
decline
in
market
activity
in
China
–
the
world’s
largest
market
for
new
lift
equipment
and
the
most
important
geography
for
Kone
–
continued
in
the
second
quarter
in
the
range
of
5%-10%,
according
to
Kone,
with
the
pace
of
decline
easing
relative
to
the
first
three
months
of
2023.

“There
are
still
no
signs
that
recent
Chinese
policy
measures
aimed
at
reviving
the
Chinese
property
market
will
orchestrate
a
much-needed
turnaround
for
the
sector”.

We
have
also
cut
our
fair
value
for
the
Spanish
renewable
energy
developer,
Corporacion
Acciona
Energias
Renovables
(ANE)
by
9%,
from
€35
to
€32.
This
is
due
to
lower
electricity
prices
achieved
in
the
short
term.

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