The ongoing electric vehicle (EV) stock craze has caught up with Canadian bus manufacturers in 2021. North America’s leading bus manufacturer NFI Group’s (TSX:NFI) stock surged by nearly 15.3% on Monday after the company released its 2021 and 2025 financial guidance. Monday’s investor day presentation propped NFI’s stock for outperforming returns in 2021 in many ways beyond just the EV outlook.
The New Flyer bus manufacturer’s sales could fully recover from a pandemic-induced dip this year. NFI anticipates respectable growth rates in the ensuing years post 2021, as demand for electric buses increases worldwide.
NFI Group to increase electric bus deliveries: Stock investors love it
The NFI Group expects sales of electric zero-emission buses, which it calls ZEBs, to constitute 20-25% of group revenue this year. Long term, management expects ZEB electric bus sales to contribute between 35% and 40% of annual sales for 2025.
The stock market currently places high-valuation multiples on electric vehicle sales and cash flow. The evidence may not only be confined to an insanely valued Tesla Motors stock, but it’s also evident in the 1,700% surge in GreenPower Motors stock in 2020, and the sudden doubling of Grande West Transportation stock when it announced intentions to deliver an electric bus in 2021.
The growing contribution of electric vehicle sales to group revenue could in part explain the sudden surge in NFI’s stock price on Monday.
That said, increasing EV bus deliveries were not the only driver in NFI’s stock surge yesterday. The company is making a marked recovery in 2021.
Company to return to record revenue levels this year
The COVID-19 pandemic hit the North American leading bus manufacturer badly last year. Lockdowns hampered production and deliveries in 2020. Clients delayed orders, revenue declined, and the group faced financial challenges. The company had to restructure credit covenants to avoid breaches.
That said, the company expects full sales recovery to record levels this year. The NFI Group reported a record US$2.9 billion in revenue for 2019. Management expects 2021 revenue to range between US$2.8 billion and US$2.9 billion and adjusted earnings before interest and taxes, depreciation, and amortization charges (EBITDA) to grow by 53% to US$220-240 million in 2021.
That’s not all we got from the latest guidance.
The company expects to sustain a healthy revenue growth rate over the four years between 2022 and 2025. Revenue for 2025 is expected in the US$3.9-US$4.1 billion range. This implies a healthy 8.8% compound annual growth rate in sales for a 90-year-old company that is pivoting to the latest technological advances in heavy-duty electric vehicle manufacturing and actually leading the way in the bus category.
Most noteworthy, the company expects profitability to grow at double the rate of revenue growth. Management anticipates a 2025 adjusted EBITDA reading of US$400-US$450 million. This should imply a strong 16.6% compound annual growth from the mid-point of the 2021 guidance of US$230 million. Recent restructuring efforts and fixed cost reductions during the COVID-19 pandemic will benefit operating profitability long term.
The NFI Group is indeed staying relevant in a changing world that highly valued EV stocks. Investors are taking notice.
Investor takeaway
It’s yet to fully recover to the $33 price range before the 2020 market crash, but investors should expect NFI Group’s stock price to continue to register steady gains during the year. The worst is over, and an EV stock multiple expansion could be on the way given the significant ZEB revenue composition by 2025.
Although the COVID-19 pandemic could linger among us for a while, world economies will need to rebuild post the scourge and cities will continue to prefer green buses to move millions around. Revenue growth looks certain after the COVID-19 pandemic is defeated through vaccination.
The company offers investors a discounted opportunity to participate in the EV boom. Buyers of NFI stock will enjoy a bonus regular quarterly dividend, which yields 3.4% at Monday’s closing price. No other EV stock seems to match this reliable yield offer.
