Bull of the Day: Ferrari (RACE)

It’s easy for me to get revved up for today’s Bull of the Day as it makes dream machines. I’m a car guy and there’s something about that prancing horse that does it for me every time. Of course I’m talking about Zacks Rank #1 (Strong Buy) Ferrari (RACE -Free Report) .

I don’t know if being bullish on a stock can land me a great deal on a 488 but I’m going to give it my best shot. So if anybody is listening out there in Maranello, “What about Dave?” Ferrari is the most fabled exotic car manufacturer in the world. They have a rich racing history and create some of the most breathtaking automobiles known to man. I could probably go on for six or seven pages about the Ferrari heritage, its legendary founder and its championship pedigree but what’s important here is the winning team that’s running the company right now.

Last year was a record year for Ferrari. Total shipments reached 8,014 units, net revenues grew 8.8% to 3.1 billion euros. Adjusted EBITDA came in at 880 million euros with margins at 28.3% and new profit was up 37.1% to 425 million euros. These great numbers led analysts to revise their earnings estimates to the upside, giving us the favorable Zacks Rank.

Two analysts have increased their earnings estimate for the current year while one has jacked up their estimate for next year. The bullish shift in EPS has pushed our Zacks Consensus Estimate from $2.32 to $2.61 for the current year and increased next year’s number from $2.49 to $2.89.

These moves have not been lost on investors, who have bid the stock up considerably from its original IPO price. After floundering a bit into the spring of 2016, RACE caught a bid in July with shares near $40. That bid has been relentless, taking the stock to over $66 today. Along the way, the 50-day moving average has provided support on the downside, being tested once in September then again in early November. The stock hit a new 52-week high intraday Thursday February 16, 2017. With margins improving and several special models due out this year, it could be another banner year for Ferrari.

by David Bartosiak 

Source:https://www.zacks.com/commentary/104001/bull-of-the-day-ferrari-race

Fiat Chrysler: 100%-200% Upside Despite The Recent Run-Up

About: Fiat Chrysler Automobiles NV (FCAU), Includes: F, GM

Summary

Analysts still do not believe that Fiat Chrysler will hit its 2018 business plan targets despite the fact that the company has consistently over-delivered on the plan.

Fiat Chrysler is one of the cheapest automakers, yet has the clearest path to improve profitability and is led by the best management team in the industry.

We believe a significant stock re-rating will occur when Fiat Chrysler turns to a net cash position in 12 to 24 months.

Despite the recent rally in the share price, Fiat Chrysler Automobiles (NYSE:FCAU) still offers investors a very compelling opportunity with potential upside of 100%-200% within the next 2 years, while at the same time providing a limited downside due to cheap valuation that already bakes in a recession.

Company presentation and current situation

The company is misunderstood and has been neglected for years by financial analysts who saw in Fiat Chrysler an inefficient European automobiles manufacturer, drowning in debt and over-exposed to poorly performing European markets or to emerging markets with economic difficulties.

We instead believe that Fiat Chrysler is (and has been since the Chrysler takeover) a fantastic special situation, led by the best management in the industry. Following the Chrysler takeover (bought by management basically for free, at 1x FCF), the company has transformed into a global player with various levers to improve the bottom line.

Sergio Marchionne presented a comprehensive 2014-2018 business plan that has always been considered as too ambitious and unachievable by analysts. Yet, 3 years later, the company has consistently executed on the plan, beating consensus at each publication and even raising its already ambitious financial targets.

Strategy, management and progress to date

Under Sergio Marchionne's leadership, and following the Chrysler takeover, Fiat Chrysler has developed clear initiatives to transform into an efficient and global automaker:

• Develop premium and luxury brands Alfa Romeo and Maserati. This helps the company's margin expansion not only by selling higher-margin products, but also by gaining efficiency as these brands will use excess production capacity in European plants. So far, this has been a success as Maserati is now highly profitable and Alfa Romeo expanded its product line and now competes in key market segments.
• Expand sales of existing brands into new markets, particularly by globalizing Jeep and Alfa Romeo. The globalization of Jeep has delivered impressive results, with the brand showing exceptional sales growth.
• Develop platforms and rationalize vehicle architectures and standardize components.
• Focus on cost efficiencies.

All these initiative having the same common goal of expanding margins and improving capital structure.

We also think it is important to stress that Sergio Marchionne is, in our opinion, the best CEO in the industry, with a clear focus on ROIC and performing exceptionally at capital allocation while also being a great operator. He has underlined at several occasions the need of consolidation in the automobile industry (e.g., in his "Confessions of a Capital Junkie" presentation) to achieve better efficiencies and stop the waste of capital to develop similar architectures and systems - a view we share with him, and frankly are quite puzzled that no other auto CEOs seem to agree with him.

Since taking over Chrysler, the company has achieved some impressive results and generated significant value for its shareholders:

• Top-line and bottom-line have both been growing at a fast clip over the past few years, executing on the strategic pillars mentioned above.
• The elimination of the Chrysler's debt ring-fencing provided the company with significant liquidity and lower interest expense.
• Ferrari has been spun-off to generate cash (holding it has rewarded investors well as the decision to increase the production limit of its luxury products generated incremental earnings with almost no additional investments).
• Net debt has recently been significantly reduced.

Despite all of these moves, there is still significant value to be unlocked, for instance, through the sale of the auto parts business, Magneti Marelli. While the plan laid out by Marchionne necessitated heavy investments to refresh existing products and enter new segments, the company's peak in capex is now behind it and investments should significantly be reduced in the next 2 years, allowing the company to generate some $10 billion in free cash flow.

Valuation

Investors are currently paying 6x 2016 EPS and 2x 2018e EPS for Fiat Chrysler. We acknowledge that automobile is a no-moat, capital-intensive industry; yet we do not believe that it makes sense to value automobile manufacturers as if they were going bankrupt - especially best-in-class ones.

Part of the reason for this low valuation is that analysts are worried about (1) the level of debt of the company (which we will develop later), and (2) peak SAAR in the US.

Advisors brace for the $30 trillion 'great wealth transfer'

No issue looms larger for the financial advice industry than demographics and the aging of the baby boomers.

Over the next several decades, the biggest and wealthiest generation in U.S. history will transfer roughly $30 trillion in assets to their Gen X and millennial children, and if studies are accurate, most of those children will promptly fire their parents' advisors.

"Studies regularly show that when wealth passes to another generation, in the majority of cases, the heirs change financial advisors," said Gauthier Vincent, head of Deloitte's U.S. Wealth Management practice. "The relationship between assets, asset owners and financial advisors is unraveling before our eyes."

Jonathan Nutt | Getty Images

How advisory firms deal with this long-term trend will determine which succeed in the future and which falter. As the 'great wealth transfer' accelerates — the oldest boomers are now 70 years old — the strengths of some business models will become more apparent and the weaknesses of others more glaring.

"This is a fascinating time from a competitive perspective," said Vincent. "There's going to be winners and losers, and market shares will shift."

He added, "This industry will be very fluid in the next decade."

For an industry that has largely earned its bread serving affluent clients — and avoiding smaller, unprofitable ones — it's been easy to put addressing this huge but slowly unfolding issue on hold.

"It's a question of revenue today versus revenue tomorrow," said Kendra Thompson, North American lead at Accenture Wealth Management Services. "Incumbent players are not by nature nimble and willing to take risk."

"There's a perception in the industry that to be successful, you can only work with people who have at least $1 million in assets. But if you don't work with the next generation, someone else will."-Peter Mallouk, CEO of Creative Planning

There's good reason for the inertia. Next-generation clients with fewer assets may be the future of the industry — every advisor acknowledges the fact — but they won't pay the bills today. Trying to attract and engage them costs money; it takes a lot of people and demands new technologies and service models. 

"Is it the right thing to do?" asked Peter Mallouk, CEO of registered investment advisor Creative Planning. "Yes — but you have to be willing to not be profitable with the mass affluent."

He added: "The majority of the industry is not designed to think generationally. Economically, it's not worth it."

Mallouk and his firm, one of the largest and fastest-growing RIAs in the country, have a leg up on most advisors. Their clients are generally high in net worth, they successfully recruit young advisors to the firm, and they offer the high-touch, full-service financial-planning relationships that are most likely to retain assets through generations.

Mallouk said involving the children of clients in financial-planning discussions is the norm at his firm. "There's a perception in the industry that to be successful, you can only work with people who have at least $1 million in assets," he said. "But if you don't work with the next generation, someone else will."

Daisy Medici, managing director of governance and education at GenSpring Family Offices, focuses on engaging all family members of the firm's ultrahigh-net-worth clients. The parents in those families expect it, and working with next-gen clients is an essential part of what a family office does. 

"We attract families that worry about the impact of wealth on the next generations," said Medici. "They come to us because we're known for bringing multiple generations of families to the table."
There are no guarantees, but if advisors can bring young family members to the table now, those children are more likely to stick with their parents' advisors down the road when they inherit assets. The trick is building the business model to do that for the future without bankrupting the firm in the present.

Iranians to splash up to $8B on overseas property: Study

Wealthy Iranians, companies and state-backed buyers will spend up to £6 billion ($8.5 billion) on overseas real estate over the next five-to-10 years following the lifting of international sanctions, a report said on Wednesday.

High-net-worth Iranians are likely to look to buy properties in London, Dubai, Switzerland, Germany or the south of France, London estate agency, Rokstone, said.

Becky Fatemi, the agency's Iran-born managing director, said London would be the location of choice, due to historical ties between the two nations. She added that wealthy Iranians tended to invest in property, jewelry and gold.

"Britain was the colonial power in Iran and it was British firms that first exploited Iran's oil reserves. Between 1945 and 1979, the Shah of Iran, his royal court and the business elite had lots of ties with Britain and the elite-owned luxury residential property in London and the home counties," Fatemi said in a media release on Wednesday.

"Dubai on the doorstep will also be popular but it cannot compete with London's educational system or cool summer climate. The other historic ties are with Germany, Paris, the French Riviera and Switzerland, but London is safer than these since a lot of properties in the capital are in conservation areas where building alterations are restricted, so values hold and outperform continental Europe," she later added.

Rokstone

Flat 7, 1 Hyde Park Street, London, W2 2JW

International sanctions on Iran were lifted in January after a watchdog confirmed the country had complied with a deal to prevent it developing nuclear weapons. The deal allows Iran's oil to be sold internationally and access billions of assets frozen overseas. It was trumpeted as one of the biggest developments to the global economy since the collapse of the Soviet Union. 

However, U.S. sanctions relating to Iran's human rights policies and alleged support for terrorism remain. This will deter Iranians from investing in properties in New York or Los Angeles, which were traditionally popular locations, according to Fatemi.

Why Iran matters

Iran is the second-largest economy in the Middle East and North Africa region after Saudi Arabia. The number of dollar-millionaires living in Iran has jumped by 170 percent since 2000 and is seen reaching 55,000 by 2025, New World Wealth told CNBC. The country is home to 1,300 multimillionaires with net assets of $10 million or more and four billionaires, the wealth information provider added. 

Fatemi said Iranians would predominately look for newly built or refurbished London apartments as second homes for themselves or their student offspring. Most buyers would look to spend anything between £1 million and £30 million, with Knightsbridge, Mayfair, South Kensington, Hampstead and St John's Wood the most popular locations.

"The grandparents and older generation still remember London's best addresses, so new buyers will look at the same locations as they did in the 1960s and 1970s. Over time, as long as the political situation continues to improve, Iranian buyers in London will join the ranks of Qatari, Kuwaiti and Saudi buyers and become significant players in the luxury marketplace again," she said.

al estate markets in 2015

Dan Kitwood, Getty Images News

Katy Barnato

Source: http://www.cnbc.com/2016/03/16/iranians-to-splash-up-to-8b-on-overseas-property-study.html