BRP Inc. (TSX:DOO), one of the world’s leading manufacturers and distributors of powersports vehicles and propulsion systems, announced its fiscal 2018 third-quarter earnings results on Friday morning, and its stock responded by rising 1.08% in the day’s trading session. Let’s break down the quarterly results and the fundamentals of its stock to determine if it could continue higher from here and if we should be long-term buyers today.
The results that sent the stock higher
Here’s a quick breakdown of 10 of the most notable financial statistics from BRP’s three-month period ended October 31, 2017, compared with the same period in 2016:
|Metric||Q3 2018||Q3 2017||Change|
|Year-Round Products revenues||$460.9 million||$383.9 million||20.1%|
|Seasonal Products revenues||$491.7 million||$417.1 million||17.9%|
|Propulsion Systems revenues||$93.5 million||$94.2 million||(0.7%)|
|Parts, Accessories, Clothing, and Other Services (PAC) revenues||$194.4 million||$185.0 million||5.1%|
|Total revenues||$1,240.5 million||$1,080.2 million||14.8%|
|Gross profit||$329.4 million||$307.2 million||7.2%|
|Gross margin||26.6%||28.4%||(180 basis points)|
|Normalized EBITDA||$199.2 million||$196.9 million||1.2%|
|Normalized net income||$109.3 million||$104.4 million||4.7%|
|Normalized diluted earnings per share (EPS)||$1.05||$0.93||12.9%|
Revisions to its guidance
In the press release, BRP made revisions to its full-year guidance, most of which were positive; here’s a breakdown:
|Metric||Fiscal 2018 Guidance vs. Fiscal 2017 Results|
|Year-Round Products revenues||Up 11-12%
(narrowed from up 8-12%)
|Seasonal Products revenues||Up 1-3%
(narrowed from down 1% to up 3%)
|Propulsion Systems revenues||Down 2% to up 1%
(lowered from flat to up 5%)
|Parts, Accessories, Clothing, and Other Services (PAC) revenues||Up 7-9%
(narrowed from up 5-9%)
|Total revenues||Up 6-8%
(narrowed from up 4-8%)
|Normalized EBITDA||Up 10-13%
|Effective Tax Rate||27-28% (28.6% in 2017)
(lowered from 28-29%)
|Normalized net income||Up 11-16%
(narrowed from up 10-16%)
|Normalized diluted EPS||Up 15-20% to a range of $2.25-2.35
(narrowed from up 14-20% to a range of $2.23-2.35)
|Capital expenditures||$240-255 million
Should you be a long-term buyer today?
It was a phenomenal quarter overall for BRP, highlighted by record revenue and normalized diluted EPS, and it has been on a tear so far in fiscal 2018, with its revenue up 12.5% to $3.22 billion, and its normalized diluted EPS up 48.5% to $1.44 in the first nine months of the year compared with the same period in fiscal 2017; with these very strong results in mind, I think the market responded correctly by sending BRP’s stock higher in Friday’s trading session.
With all of this being said, I think BRP represents a fantastic long-term investment opportunity for two fundamental reasons.
First, it’s one of the best growth stocks in the industry. As mentioned before, BRP achieved 12.5% revenue growth and 48.5% earnings growth in the first nine months of fiscal 2018, and it’s on pace to post revenue growth of 6-8% and EPS growth of 15-20% in the full year of fiscal 2018. Analysts expect the growth to continue in fiscal 2019, with current projections calling for EPS of $2.70, which would result in growth of 14.9-20% from BRP’s current EPS guidance of $2.25-2.35 for fiscal 2018.
Second, it’s undervalued based on its growth. BRP’s stock trades at just 20.7 times the median of its normalized EPS outlook for fiscal 2018 ($2.30) and only 17.7 times the consensus analyst estimate of $2.70 for fiscal 2019, both of which are very inexpensive given its aforementioned growth rates and its long-term growth potential.
BRP’s stock is up more than 100% since I first recommended it on December 15, 2014 and more than 81% since I last recommended it on October 20, 2015, and I think it is still a great long-term buy today, so take a closer look and consider initiating a position.