Lean Savings And New Products Will Unlock Future Powersports Potential

Key Takeaways

• Strategic inventory reduction and new product launches position BRP to align volumes and capture consumer interest, driving revenue growth.
  
• Operational efficiency gains and a focus on core segments enhance profitability and market leadership potential, supporting earnings growth.
  
• Geopolitical tensions, tariff risks, and economic uncertainties are creating forecasting challenges and impacting BRP's production, market share, margins, and investor confidence.

Catalysts

Designs, develops, manufactures, distributes, and markets powersports vehicles and marine products in the United States, Canada, Europe, the Asia Pacific, Mexico, Austria, and internationally.

• BRP has significantly reduced network inventory, especially in key segments like ORV, which positions the company to better align retail and wholesale volumes, potentially driving top-line growth as inventory levels normalize. This is expected to improve revenues as industry conditions stabilize.
  
• The introduction of new products, such as Can-Am electric motorcycles and updated ATV platforms, is expected to generate consumer interest and drive sales, which can contribute to revenue growth.
  
• BRP has achieved over $200 million in lean savings, indicating an improvement in operational efficiency, which could enhance net margins by reducing costs and improving profitability.
  
• The decision to sell the Marine business allows BRP to focus on its core Powersports segment, potentially leading to better allocation of resources and investment into high-growth areas, positively impacting earnings.
  
• The anticipation of a market rebound and BRP’s positioning as the #1 OEM in Powersports provides an opportunity to capture greater market share and leverage consumer demand recovery, expected to increase revenues and support earnings growth.

BRP Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BRP's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 6.1% in 3 years time.
• Analysts expect earnings to reach CA$522.5 million (and earnings per share of CA$7.57) by about August 2028, up from CA$181.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.7x on those 2028 earnings, down from 31.7x today. This future PE is lower than the current PE for the CA Leisure industry at 25.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

BRP Future Earnings Per Share Growth

Risks

• The ongoing geopolitical dynamics and tariff disputes are creating an unpredictable operating and demand environment, impacting consumer confidence and making it difficult for the company to forecast demand, which could affect future revenue projections.
  
• A softer industry and continued pressure on consumer demand have led to reduced shipments and lower production volumes, resulting in potential short-term market share losses and impacting net margins and earnings.
  
• The potential imposition of new tariffs, particularly a 25% tariff on products produced in Canada and Mexico for the U.S., presents a significant risk that could impact costs and lead to decreased net margins.
  
• Overproduction in the past and higher noncurrent inventory from other OEMs might lead to increased competitive pricing pressures and promotional activities, affecting pricing strategies and subsequently revenues and earnings.
  
• The company's decision to refrain from providing fiscal year 2026 guidance due to uncertainties, including potential impacts from tariffs and economic conditions, highlights the challenges in predicting financial performance, thus posing a risk to investor confidence in earnings stability.

Valuation

• The analysts have a consensus price target of CA$73.882 for BRP based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$97.0, and the most bearish reporting a price target of just CA$50.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$8.6 billion, earnings will come to CA$522.5 million, and it would be trading on a PE ratio of 12.7x, assuming you use a discount rate of 7.1%.
• Given the current share price of CA$78.7, the analyst price target of CA$73.88 is 6.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.