Canadian manufacturer sped past target price

UBS analysts Robin Farley, Arpine Kocharyan, and Alex Kivali are bullish on BRP Inc. (TSX—DOO; NASDAQ—DOOO) after the company released its mission for 2025, guiding toward new earnings target and growth targets above the analysts’ previous estimates.


Canadian manufacturer sped past analyst expectations

The analysts are confident in BRP’s growth abilities and higher-revenue goals in the company’s Can-Am and Marine segments as well as its cost-saving abilities through lean manufacturing.
The analysts reiterated their “buy” rating and target price of $183 per share for the power-sport vehicle manufacturer.

BRP is a Valcourt, Que.-based company that designs, develops, and sells power-sports vehicles globally. Under its two segments, power sports and marine, the company offers sport vehicles such as snowmobiles, watercraft, and engines for motorcycles. The company announced an all-electric motorcycle on March 25, 2022, which should be available in 2024.

BRP raised its full-year 2025 revenue target to between $12 billion to $12.5 billion, up from its previous target of $9.5 billion. The analysts say that the new revenue estimate is above their $10.7 billion estimate, and would imply a 17-per-cent top-line compound annual growth rate (CAGR) at the midpoint.

For 2023, BRP is guiding toward $9.5 billion to $9.9 billion in revenue, $11 to $11.35 earnings per share (EPS), and plans to raise their earnings before interest, taxes, depreciation, and amortization (EBITDA) by 12 per cent to 15 per cent year-over-year, according to the analysts.

The analysts say that BRP plans to achieve its aggressive new estimates through $2 billion of revenue from its Can-Am brand, $400 million from its Marine segment, and $500 million from seasonal- and new-growth opportunities. BRP’s Can-Am brand is 50-years-old and manufactures and sells motorized power-sport vehicles.

The analysts note that BRP has also achieved its previous guide of $300 million of cost savings in Lean Value – a process that involves eliminating unnecessary steps in the vehicle-manufacturing process – and is targeting another $100 million by 2025.

For the future, the analysts say that BRP has hinted toward new mobility vehicles that would include both electric and traditional internal-combustion engines. The analysts say that BRP is likely to acquire something in order to make the new engines, which are outside of BRP’s current segments, or they could be developing their own innovations internally for the new vehicles.

This is an edited version of an article that was originally published for subscribers in the August 5, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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