Element Fleet Management wins “Best Idea” stock at RBC

The markets have been, and remain, in the doldrums.

Looking for a stock idea that break that pattern? RBC analyst Geoffrey Kwan thinks he has one.

As reported by the Globe and Mail, Kwan named Element Fleet Management (Element Fleet Management Stock Quote, Chart, News, Analysts, Financials TSX:EFN) to his “high conviction best idea” list.

In a recent update to clients, Kwan explained the reasoning behind his bullish take on the fleet management stock.

“Element Fleet trades at just 12.9 times 2024 estimated P/E [price to earnings] and 10-per-cent 2024 estimated FCF [free cash flow] yield, which we think is undervalued given LTM [last 12-month] EPS and FCF/share growth of 26 per cent and 28 per cent,” the analyst argued. “We think Element can deliver a more than 16-per-cent EPS CAGR [compound annual growth rate] over the next five-years, helped by factors like significant growth opportunities and substantially lower credit and other risks vs. other financials. We think the UAW strike impact as likely immaterial as Element’s customers still need substantial vehicle replacements given the OEM production shortage over the past 2-plus years.”

EFN will post its Q3 results on November 6. In August the company posted EPS of $0.29 on net revenue of $323.1-million, a topline that was up 12.1 per cent over the same period in 2022.

“Element’s second quarter results reflect our team’s ability to consistently deliver superior service and value to our clients, combined with improved OEM supply driving record originations in the U.S. and Canada,” said CEO Laura Dottori-Attanasio. “All Element stakeholders will benefit as our historic global backlog of client orders eventually normalizes over the course of the next 12 to 18 months. Meanwhile, we remain focused on executing our proven organic net revenue growth strategy.”

With the report, Kwan reiterated his reaffirmed his “outperform” rating and $30 target on the stock.

Shares of EFN closed October 25 up a penny to $18.87.