Blue Bird Corporation BLBD, a notable school bus manufacturer with a century-long legacy, is currently basking in the limelight on the stock market, surpassing industry, sector, and S&P 500 benchmarks. Remarkably, BLBD has claimed the title of the top-performing auto manufacturer year to date.
The company has delved into cutting-edge automotive technologies, particularly in the realm of alternative fuel and electric vehicles (EV). With the U.S. government advocating for increased adoption of EV and non-fossil fuel buses in public schools, Blue Bird stands to gain significantly from this strategic move.
With an 80% surge in its stock value since the beginning of the year, investors are now contemplating whether there’s still untapped potential for growth or if the market has already factored in all possible gains. The question lingers – should one consider investing in BLBD at its current valuation or lock in profits?
Performance Overview Year-to-Date
Image Source: Zacks Investment Research
Blue Bird’s Strategic Maneuvers Amid Market Dynamics and Government Initiatives
The surge in electric school bus adoption in the United States, fueled by substantial government funding to replace diesel fleets, is a driving force behind the current market scenario. The enactment of the Bipartisan Infrastructure Law, which allocates $5 billion over five years for zero-emission bus replacements under the EPA’s Clean School Bus Program, has opened up doors of opportunities. Currently, with most U.S. school buses still relying on diesel, Blue Bird is strategically positioned to leverage this expansive market potential, supported by favorable governmental policies and escalating demand.
In response to the escalating demand for zero-emission buses, the company is escalating its production capability. By establishing an EV Build-up Center in Georgia last year and obtaining an $80 million DOE grant in July to convert a facility into an EV manufacturing plant, Blue Bird is poised to ramp up its annual electric bus production to over 5,000 units.
Apart from electric buses, BLBD also incorporates gasoline and propane as alternative fuels, with propane receiving EPA funding and recognition for its low emissions. Through extending its exclusive partnership with Ford and Roush CleanTech until 2030 in May, Blue Bird solidified its dominance in low-emission student transportation.
Late last month, Blue Bird marked a significant milestone by delivering its 2,000th electric school bus, powered by Cummins’ PowerDrive 7000 system.
BLBD’s Exceptional Q3 Financial Performance and Bright Future Horizons
Blue Bird unveiled stellar fiscal third-quarter 2024 results in early August, attributing the success to the upsurge in demand for school buses and EV models. The company outperformed both earnings and revenue projections, with an impressive adjusted EBITDA of $48 million and a 14.5% margin. Ending the quarter with a backlog of 5,200 units, BLBD substantially revised its fiscal 2024 revenue projection to hover between $1.30-1.33 billion, up from the previously guided $1.27-$1.32 billion. The adjusted EBITDA range was also elevated to $170-180 million from $145-165 million. Blue Bird has now set its sights on a 15% adjusted EBITDA margin with around $2 billion in revenues in the long term.
The company’s relentless efforts to enhance operational efficiencies, bolster production capacity, foster new order growth, and fortify its position in alternative-fueled buses are paying off. After weathering the devastating impact of the pandemic on its operations, Blue Bird witnessed revenue growth of 17% in fiscal 2022 and an impressive 42% in fiscal 2023. The Zacks Consensus Estimate hints at an 18% increase in sales for fiscal 2024 and a 12% rise for fiscal 2025. Similarly, the consensus estimates for current and next fiscal year EPS point toward growth rates of 216% and 10%, respectively.
Assessing the Investment Strategy for BLBD Stock Moving Forward
If the temptation to cash in on the exceptional returns provided by Blue Bird stock this year strikes, it may be wise to pause for a moment. The company’s promising outlook and strong fundamentals indicate a continued upward trajectory. With a Zacks Rank #1 (Strong Buy), BLBD stock presents an enticing investment prospect.
From a valuation angle, BLBD is currently trading at a forward 12-month sales multiple of 1.06, trailing the industry’s 1.65 and resting comfortably 18% below its five-year peak. Additionally, the company boasts a Value Score of B.
Image Source: Zacks Investment Research
Over the past 60 days, the Zacks Consensus Estimate for BLBD’s fiscal 2024 and 2025 EPS has been revised higher by 65 cents and 80 cents, respectively.
The optimism regarding BLBD’s potential is mirrored on Wall Street, with six out of seven analysts covering the stock issuing ‘Strong Buy’ recommendations, culminating in an appealing Average Broker Rating of 1.14. The Zacks average price target of $57/share underlines a 17% upside potential from the current valuation.
Image Source: Zacks Investment Research
In light of the robust fundamentals and attractive valuation parameters, refraining from cashing out profits in BLBD stock and rather expanding the stake in Blue Bird may lead to greater returns in the future.