Blue Bird Corporation Stock: Strong Pricing And Backlog Set To Fuel Growth (NASDAQ:BLBD)

The Thesis

After a powerful 2023 drive by robust demand setting for the Blue Hen Company (NYSE:BLBD) product, the primary three quarters of 2024 has seen robust double-digit topline progress. For my part, the corporate’s income ought to profit from robust progress in EVs and better pricing within the close to time period. Whereas the longer-term demand needs to be pushed by the federal funding of roughly $5 billion within the coming years. The corporate’s margin additionally appears to be like good with robust pricing and continues concentrate on growing operational effectivity in 2024 and past. The corporate’s inventory is presently buying and selling under its historic common, and contemplating a superb long-term prospect, I’ve a purchase ranking on this inventory.

Enterprise Overview

Blue Hen Company is an American firm, which along with its subsidiaries is primarily engaged in designing, engineering, manufacturing, and promoting college buses and associated components throughout america, Canada, and Internationally. This firm is a number one producer within the college bus trade and operates primarily by two segments:

Faculty Buses: On this section, the corporate provides Sort C (Standard), Sort D (Transit Type), and specialty buses. The corporate has alternate energy choices for its buses, comparable to propane-powered, gasoline-powered, compressed pure gas-powered, and electric-powered.

Elements: On this section, the corporate supplies a variety of aftermarket components and providers for the upkeep and operation of their buses to make sure the reliability of the automobiles.

Blue Hen is thought for its progressive and dependable buses, with a variety of fashions to fulfill totally different transportation wants. It additionally has a big presence throughout North America, with a powerful supplier community and gross sales assist providers for its clients.

Final Quarter Efficiency

Shifting into the second half of the 12 months, the corporate continued its robust double-digit topline progress as demand for the corporate’s merchandise remained robust. Whereas the quantity progress was virtually flat year-on-year, with a progress of simply 14 buses versus final 12 months’s similar quarter, the income progress was pushed primarily by increased pricing and an improved mixture of Sort D and EVs. The pricing grew 13% year-on-year, which is roughly a $17,000 improve within the common gross sales value per bus, which resulted in a progress of 13.3% to $333.4 million within the firm’s topline versus the prior-year quarter.

Robust value realization additionally helped the corporate’s margin through the quarter, which together with profit from a powerful combine of upper margin Various Powered Automobiles resulted in a year-on-year bounce of about 440 bps within the firm’s adjusted EBITDA margin reaching 14.5% through the third quarter of 2024. Labor and materials prices, nevertheless, elevated through the quarter, partially offsetting the advantages from robust pricing and a good combine. EBITDA progress through the quarter additionally benefitted the corporate’s backside line efficiency as the corporate adjusted EPS greater than double to $0.91 from simply $0.44 a 12 months in the past, beating the consensus estimates by $0.40 within the third quarter of 2024.

Outlook

After a powerful 2023, BLBD is heading towards one other superb 12 months with first rate double-digit topline progress within the first three quarters of 2024, with progress within the mid-teen within the final quarter. I anticipate this robust progress to proceed as market demand for the corporate’s college buses continues to be very robust. This, together with growing order share favorable pricing, ought to gasoline topline progress for the corporate within the quarters forward. The corporate’s backlog ranges are additionally robust, presently price about $775 million as of the third quarter of 2024, and reflecting over 5200 buses.

Within the final quarter, order bookings for EVs, that are part of the choice energy combine, grew by 38%, resulting in an EV order backlog of 567 items, which is price about $180 million, which is an 11% year-on-year improve. In my view, this robust backlog degree ought to drive gross sales progress for the corporate within the quarters forward. Whereas the general demand stays for EVs stays robust, the corporate is decreasing its EV gross sales outlook by about 100 items primarily as a result of timing of EPA (Surroundings Safety Company) orders and requested supply timing, which ought to give headwinds to the This fall 2024 gross sales.

The corporate’s demand outlook for the close to time period appears to be like promising, because of robust pricing and an enhancing mixture of alternative-powered automobiles. Whereas the close to time period appears to be like good, the corporate is well-positioned to profit considerably from federal funding for clear and environment-friendly college buses. The EPA, which is an company, that’s offering important funding to assist the adoption of electrical and propane college buses below its EPA five-year clear college bus program has allotted $5 billion for electrical and propane buses with roughly $4 billion nonetheless obtainable to be injected within the coming quarters. In 2023, below this program, EPA provides about $2 billion by two rounds of roughly $965 million and $940 million every. Though the most recent spherical of fund allocation below this program is a lottery-based rebate, the corporate is anticipating to win roughly 30% of those orders or 1900 buses. If the corporate’s prediction holds true, then this could considerably enhance the corporate’s gross sales for FY25 as deliveries of those items are anticipated to be beginning mid-2025.

Along with this, the IRA (Inflation Discount Act) has additionally allotted $650 million for electric-powered buses. For my part, this trade is ready to get a big quantity of funding within the coming years to proceed supporting clear bus adoption. Contemplating BLBD’s robust market place with a powerful presence throughout North America, the corporate’s topline ought to profit from this funding past 2024.

Moreover, the corporate can also be specializing in its future growth plan to deal with the anticipated rising demand in the long run. The corporate has additionally been awarded an $80 million grant by the Division of Power to extend the EV and total manufacturing of their Sort D buses, which ought to assist the corporate in increasing its single shift capability of faculty buses from 10,000 to 14,000 buses yearly, which ought to assist the corporate in coping with anticipated demand progress within the coming 12 months, resulting in topline growth in the long run.

Valuation

Previously 12 months, the BLBD inventory has given roughly 150% returns to its traders as the corporate’s topline and backside line continued its robust efficiency all year long. Presently, the corporate’s inventory is buying and selling at a Non-GAAP ahead P/E ratio of 14.74, primarily based on the FY24 EPS estimates of $3.35. For FY25, with EPS estimates of $3.63, the inventory ahead P/E is 13.63. On evaluating with the five-year common P/E of 30.25x, the corporate’s inventory seems to be at a notable low cost of over 50%.

I anticipate the corporate’s income to proceed its robust progress additional within the coming quarter as demand stays robust for the corporate’s buses. This could end in quantity progress, which, together with profit from excessive pricing and improved combine of upper margin class, ought to assist the corporate in its margin progress in 2024 and past. As we will see within the chart above, the corporate’s margin efficiency has outperformed the sector median by a big distinction, as the corporate is strongly positioned within the college bus trade. I anticipate the corporate’s margin to proceed to develop steadily within the coming quarters and obtain its 15% long-term EBITDA margin goal, which must also drive the corporate’s backside line resulting in additional enhancement within the firm’s inventory valuation sooner or later.

Threat

The corporate’s profitability has elevated considerably within the current quarters, which has benefited the corporate’s backside line as effectively, with the final quarter’s adjusted EPS greater than doubling from the final 12 months’s quarter. My thesis is constructed upon the expectation that the corporate ought to proceed this robust efficiency additional, main each margin and backside line progress. Nevertheless, if the corporate’s topline progress falters, this might result in quantity deleverage within the coming quarter, negatively impacting the margins. Such topline and margin weak spot then might put strain on the corporate’s backside line, leading to deterioration within the inventory valuation, doubtlessly resulting in poor inventory efficiency.

Conclusion

As we mentioned above, the corporate’s inventory is buying and selling at a reduction to its historic averages. I’m anticipating the expansion throughout each high and backside line to proceed additional because the demand setting stays robust, and the corporate continues to concentrate on enhancing operation efficiency. The long run additionally appears to be like promising; subsequently, I’d recommend shopping for this inventory on the present ranges.