2023-11-22 17:09:10
Nvidia revealed good financial results in the third quarter. (Photo: 123RF)
What to do with titles from BRP, Sleep Country, and Nvidia? Here are some analyst recommendations likely to move prices soon. Note: the author may have an opinion completely different from that expressed.
BRP (DOO, $100.40): modest expectations improve the stock’s risk-reward ratio for the most patient
A few days before the unveiling of third quarter results, on November 30, Martin Landry of Stifel takes stock of the recreational vehicle manufacturer in order to gauge the potential for a rebound on the stock market.
Investors are nervous judging by the stock’s 3.4% decline on November 21.
“Given that BRP’s valuation has been depressed for two years, we carried out a small survey of institutional investors to assess when investor favor might return,” explains the analyst.
It appears that for around 70% of the investors surveyed, the valuation of the stock is not a consideration since in their eyes BRP’s profitability has already peaked in the current consumer discretionary cycle.
Some 44% doubt that the growth potential of new products (electric motorcycles, urban vehicles and boats) is sufficient to compensate for the decline of traditional products (all-terrain vehicles, side-by-side vehicles, personal watercraft and snowmobiles). “We disagree with this view since the current high capital expenditures are expected to lead to a new cycle of new product launches,” he says.
A cohort of 33% of these respondents also believe that the consensus forecast for BRP does not adequately reflect the current economic slowdown.
Still, the analyst argues if BRP maintains its market share, launches new products and repurchases its stock, its earnings per share might grow in 2024 even if the entire RV industry declines as expected.
Some 30% of respondents surveyed are waiting for a more attractive price to pick up the stock, suggesting that valuation influences their decision.
Martin Landry concludes that BRP’s stock is therefore unlikely to fall further and that its risk-return is attractive for longer-term investors to whom he also suggests starting to accumulate shares.
The Stifel analyst recalls that BRP’s valuation has compressed substantially since the zenith of July 2020. The stock is trading at a multiple of 8 times projected earnings in 2025, or 38% less than the average since its IPO.
As for the third quarter, Martin Landry expects a 4% decline in revenues since a year earlier the replenishment of vehicle stocks had increased revenues by 43%.
Additionally, lower supply chain costs and higher sales of premium vehicles are expected to have lifted gross margin by 0.8%. Forecast earnings of $2.99 per share are 18% lower than the same quarter last year, but still 128% higher than two years ago. The consensus is $3.11 per share.
On November 30, BRP is also expected to unveil a first look for 2024 that will influence the stock’s performance over the coming months. The level of stocks, the ability to adapt the production rate to the decline in demand, the outlook for three-wheeled vehicles and the intensity of promotions will be in the sights of investors.
In the end, the analyst reiterates his buy recommendation. Its target price of $150 is 9% higher than the average of its colleagues.
Dominique Beauchamp
Sleep Country/Dormez-vous (ZZZ, $24.10): the leaders of the mattress king reassure
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