Citi analyst Harald Hendrikse recently downgraded Ferrari's stock to Sell from Hold, despite increasing the price target to €329 ($357) from €308 ($334). This decision was driven by the stock's closing price on Friday, surpassing €392 ($425) a share, which is approximately 20% above the new price target set by Hendrikse.

Rationale for Downgrade

While acknowledging the quality and long-term growth potential of Ferrari, the analyst highlighted the current valuation as a key concern. The stock's remarkable recent performance, with U.S.-listed ADRs up 26% in 2024 and 57% over the past year, has led to an elevated price-to-earnings ratio of 52 times the expected per-share earnings for 2024.

Comparison with Luxury Market

In comparison to luxury goods maker LVMH Moët Hennessy Louis Vuitton trading at around 26 times earnings, Ferrari appears significantly overvalued. Hendrikse's earnings forecast for 2024 aligns closely with the consensus estimate, supporting his Sell rating and target price at 43.5 times estimated earnings.

Market Reaction and Analyst Sentiment

Following the bearish call, Ferrari shares experienced a 2.9% decline in overseas and premarket trading. While 46% of analysts still recommend buying Ferrari stock, the average price target reflects a potential 8% decrease from current levels.

In conclusion, the assessment of Ferrari's stock price by Citi underscores concerns about valuation and suggests a cautious approach for investors evaluating this high-flying luxury automaker.

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