Opinions
Brian Madden
BRP Inc.
DOO-T
HOLD
Jan 17, 2025
Stock price when the opinion was issued
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Premium contentWith cash reserves growing, debt declining and shares being bought back, we select DOO as a TOP PICK. Seasonal sales in both water and power sports will begin to ramp up. It trades 8x earnings and supports a strong ROE. Its modest dividend is backed by a payout ratio under 10% of cash flow. We recommend setting a stop-loss at $67, looking to achieve $102 — upside potential of 22%. Yield 0.8%
(Analysts’ price target is $102.22)Premium contentDOO reported EPS of 61c, beating estimates of 44c but declining from prior quarterly levels of $3.21. Revenue came in at $1.84B missing estimates of $1.89B and declining 34% year-over-year. Lower revenues were attributed to lower volume across most product lines as it continued to reduce its network inventory levels. Operating margins also dropped 470 basis points as a result of the lower volumes. DOO also cut its FY2025 guidace significantly. Revenue of C$7.8B-C$8B is expected from C$8.6B-C$8.9B, and normalized EPS of C$2.75-C$3.25 is expected from C$6.00-C$7.00. The results were of course not good and highlight the softening industry demand and transitional period the company is entering, as described in our recent report.
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Premium contentOur PAST TOP PICK with DOO has triggered its stop at $80. To remain disciplined, we recommend covering the position at this time. This will result in a net investment gain of 9%, when combined with our previous recommendations.
Premium contentThe Quebec based manufacturer of outdoor recreation vehicles is a TOP PICK. We like how cash reserves are growing as the company aggressively buys back shares and reduces debt. It trades at 26x earnings and supports a 31% ROE. We recommend setting a stop-loss at $67, looking to achieve $93 -- upside potential of 20%. Yield 0.8%
(Analysts’ price target is $93.25)Premium content
Vulnerable because it's a manufacturer that exports to the US. Especially at risk because 60% of product is sold to US, but only 10% of factories are there. 60% of factories are in Mexico, and he feels that country could feel the brunt of tariffs more than Canada.
Don't sell in a knee-jerk reaction on the basis of one variable that may or may not come into force. Stock prices already discount everything that's fundamental to the outlook of a company. Instead, think about valuation, whether it's easy to substitute the product, customer loyalty, effect of tariffs on USD, and how long the tariffs will last.