The Motley Fool

Forget Bombardier, Inc.: BRP Inc. Is the Better Buy

Do you remember the TV series, The A-Team?

If you’re over the age of 50, you probably do, and those younger probably know it because of the 2010 movie based on the original characters.

Anyway, the leader of the A-Team, Colonel John “Hannibal” Smith, played in the TV series by actor George Peppard, would always say, “I love it when a plan comes together” after a successful rescue or gun battle was over.

That’s how I feel reading the third-quarter earnings report for the Bombardier/Beaudoin family’s other company: BRP Inc. (TSX:DOO), makers of Ski-Doo snowmobiles, Sea-Doo personal watercraft, and Can-Am all-terrain vehicles.

At the end of June, I recommended investors buy DOO stock because I felt it was cheap and BRP’s business was growing–a wonderful combination that doesn’t appear much these days given the frothy stock markets.

It’s up 47% since June 28, and I think BRP is just getting going. If you’re looking for a good long-term hold, forget about its better known sibling Bombardier, Inc. (TSX:BBD.B), and throw that money into DOO stock.

Five years from now, I’m confident you’ll be glad you did. Here’s are some metrics from the quarter:

  • Revenues in Q3 2017 grew 6.9% year over year to $1.1 billion.
  • Gross margins were 28.4%–400 basis points than in the same quarter a year earlier.
  • Normalized EBITDA increased 39.2% to $197 million, or 18.2% of revenue.
  • Normalized diluted earnings per share were $0.93–50% higher year over year.
  • Its year-round products (ATVs, SSVs) increased 47.6% to $123.8 million.
  • Its personal watercraft business achieved high-single-digit growth in North America, capturing record market share.
  • Through the first nine months of fiscal 2017, it generated free cash flow of $66.4 million–a $98.4 million difference from the same nine-month period last year.
  • For those unsure about the strength of the U.S. economy (no thanks to Mr. Trump), BRP’s U.S. sales increased 21% in the ninth-month period ended October 31, 2016.
  • Canadian revenue declined 10% in the same period, and international sales were flat. U.S. revenues exceeded Canadian and international revenues combined–always a good trend.
  • For the first nine months of the fiscal year, revenue for its year-round products exceeded its seasonal products, setting its overall business on solid ground.

“I am proud of our excellent third-quarter results for fiscal 2017. We are on track with our plan despite the global context of political and economic uncertainties and a competitive market,” said José Boisjoli, president and CEO. “I believe that our product, geographic and manufacturing diversification continues to place BRP in a favourable position to achieve our objectives.”

What exactly are those objectives?

Long term, it’s looking to make BRP a more efficient and nimble organization. Included in those plans are the acceleration of its Can-Am growth combined with state-of-the-art R&D to deliver future products that its customer base demands.

By improving its supply chain and introducing cutting-edge technologies to build better products at lower costs, its initial results are encouraging.

Two years ago, it set in place a goal of 10% compound annual revenue growth and 15% normalized compound annual EPS growth over the next seven years. While it hasn’t met those numbers just yet, the fact that BRP has upped its revenue and earnings-per-share guidance for fiscal 2017 by a considerable amount suggests its business is gaining tremendous momentum.

Do I think BRP’s stock will gain 46% over the next six months like it did in the past six? No, I don’t, but I do think it could do so by the end of 2017.

Things are setting up nicely for DOO. Hop on board!

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share.
Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune.
Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Will Ashworth has no position in any stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.