The latest fourth-quarter results from BRP Inc. (CA:DOO, US:DOOO) were a thing of beauty. Yet after the powersports vehicle maker’s premarket March 23 report, investors sent its stock down nearly 5% on the news.
One factor for the drop could be the 0.25% interest rate hike. Eventually, the theory goes, consumers will run out of money and credit to buy the Quebec company’s SSVs (side-by-side vehicles), ATVs (all-terrain vehicles), and snowmobiles. Another could be the adage “buy on rumor, sell on the news.” Investors might have bought shares before the news and are now selling to book profits.
Or, maybe, it’s a new moon and investors have merely lost their minds.
To be sure, the company formerly known as Bombardier Recreational Products results were virtually a perfect 10. Should its stock retreat below $100 in the days ahead, Thursday’s news provides aggressive investors with a buying opportunity.
Highest Quarter
On the top line, the company’s revenue in Q4 was $3.08 billion [figures in Canadian dollars, unless otherwise specified], 31% higher than a year earlier. It was the company’s highest quarterly sales number in its history. On the bottom line, it had a normalized net income of $309.2 million, 23.0% better than Q4 2022. That’s a net margin of 10.0% on the nose.
“We are proud of our outstanding fourth quarter retail performance as we significantly outpaced the Powersports industry and concluded the year with an exceptional 5 percentage points market share increase over the previous year in North America,” said José Boisjoli, CEO.
The entire fiscal 2023 was a success for BRP as it topped $10 billion in annual sales for the first time.
The company’s outlook for 2024 is optimistic. It expects revenue growth of 10.5% at the midpoint of its guidance, with a 4% increase in normalized earnings per share to $12.50.
Dividend Boost
Given the economic headwinds most global businesses face in the year ahead, Boisjoli appears very enthusiastic about fiscal 2024. He and the board are so confident, BRP increased its quarterly dividend by 12.5%. Shareholders will now receive 18 cents with the April payment —the annual rate of 72 cents yields 0.7%.
Candidly, BRP is more about growth rather than income. Over the past five years, its shares are up more than 120%, more than 4x the S&P/TSX Composite Index, the 250-stock gauge that represents about 70% of the total capitalization of the Toronto Stock Exchange.
Investors looking more closely at the company’s 2023 results will see a business firing on all cylinders.
BRP’s most significant growth driver is its Year-Round Products business. This encompasses its SSV, ATV, and 3WV (three-wheeled vehicles) marketed under the Can-Am brand. In 2023, the trio of product lines accounted for more than 48% of BRP’s revenue, and the company expects their revenues to increase by 17.5% in 2024 at the midpoint of its guidance. Five years ago, the Year-Round Products accounted for 43% of overall revenue, 500 basis points less than where it is today.
Geography Change
BRP’s Seasonal Products, including its Ski-Doo and Lynx snowmobiles and its Sea-Doo personal watercraft (PWC), accounted for 34% of its business. That’s about the same share as in fiscal 2019. The company expects its sales for this segment to be flat to a mid-to-low single-digit decline in 2024.
What’s changed for the company over the past five years is the sales by geographic region. In 2019, it generated 53.7% of its revenue from the U.S. As of the end of fiscal 2023, the U.S. contributed 60.1% of BRP’s overall revenue, 640 basis points higher.
It now does more business inside North America than outside the U.S. and Canada. It’s why the company opened its North American headquarters in Texas in 2018. Americans buy a lot of its products, Texans in particular.
Investors appear to have overthought the company’s guidance for 2024. Barring a steep recession in the year’s second half, BRP looks ready for a repeat performance from 2023.
Of the 12 analysts covering BRP stock, according to MarketWatch, 11 rate it a buy, while one has it as outperform, with a 12-month target price of US$101.40, 31% higher than where it’s currently trading.
Q4 2023 did little to change that opinion.
This article originally appeared on Fintel
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