Scotia chops target on BRP

Ahead of the company’s Q4 results, due March 28, Scotia Capital analyst George Doumet has cut his price target on BRP (BRP Stock Quote, Chart, News, Analysts, Financials NASDAQ:DOO).

As reported by The Globe and Mail, the analyst thinks the company will come close to meeting the street’s EBITDA expectation of $1.6-billion, which would not be cause for celebration as it would represent a decline of 12% over the same period a year prior.

“That outcome should be viewed positively in the context of the current share price: applying DOO’s midcycle multiple of 7.8 times – arguably conservative given our expectation for trough earnings this year – the market is pricing-in EBITDA of $1.200-billion (down 31 per cent). Our bear case is $1.400-billion (down 19 per cent).”

In a research update to clients March 26, Doumet maintained his “Sector Perform” rating on BRP, but lowered his price target on the stock from $109.00 to $105.00.

“We forecast EBITDA margins of 15.3 per cent in 2024 (Street at 15.2 per cent), in-line with management commentary for ‘100 bp or so’ of margin compression year-over-year,” the analyst wrote. “Our 2024 forecast is 200bp above 2019 levels. We believe BRP has levers to mitigate industry headwinds: in 2020, it reduced SG&A by $75 million on a 2-per-cent sales decline. Mix should be a tailwind given premium skew as could reducing Marine losses. Polaris is targeting EBITDA margins in the mid-to-high teens by 2026 compared to current levels of 11.4% – i.e., what BRP has achieved already. Moreover, Polaris is attempting to employ a similar playbook to BRP including expanding its Mexican manufacturing footprint, reducing costs and improving plant efficiency, and increased platforming (similar to BRP’s modularity approach).”