BRP Inc (TSX:DOO) Jumps 15% on Strong Earnings

Posted on August 30, 2019 by Mathieu Litalien
TSX:DOO Earnings

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Is a recession on the horizon? If BRP Inc’s (TSX:DOO) strong second quarter results are any indication, global consumer confidence is doing just fine, and those who are just learning how to buy stocks in Canada may want to continue looking at the retail sector.

On Thursday morning, the Canadian company reported 2020 quarterly results that topped expectations. Normalized diluted earnings of $0.71 per share beat by $0.08 and revenue of $1.459 billion topped estimates by $109 million. This represented growth of 7.6% and 20.9% respectively.

On the back of solid results, it also increased the bottom range of its 2020 revenue and normalized EBITDA outlook by 100 basis points. Furthermore, earnings per share are now expected to come in between $3.65 and $3.80, up from $3.55 to $3.75 per share previously.

It was a solid quarter for the company and the market agreed sending its share price up 15.5% yesterday. It was a nice rebound for the company after it lost much of its yearly gains over the past couple of months.

Year to date, the company’s stock is now up 31% which is nice bump. However, it is still trading well below its 52-week high of $74.67.

What about trade wars?

As the trade war between the U.S. and China intensifies, there were fears that companies such as BRP would be negatively impacted. Thus far, the trade rhetoric has had little impact. According to Chief Financial Officer Sebastien Martel, “The whole tariff dispute between the U.S. and China is having a minimal impact on our results”.

In fact, he pointed out that any impact would be at a maximum $20 million over a 12-month period. This is a relatively small amount, and not enough to have a significant impact on the fundamentals of the company.

In the quarter, it also closed on its bought deal offering where it agreed to repurchase over 6 million shares for a total cost of $300 million. In total, the number of shares repurchased accounted for approximately 7% of shares outstanding.

Following the quarter’s end, it closed on its 80% acquisition of Telwater Pty Ltd., a leading manufacturer of aluminium boats in Australia.

Looking forward, analysts expect mid-single digit revenue growth and double-digit earnings growth in the low teens. It is trading at a cheap 11.4 times forward earnings, 0.77 times sales and sports a PEG ratio below 1. This is a sign that the company’s share price has plenty of room for further upside.

Expect the company to build on this momentum and post a strong second half.

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Mathieu Litalien

About the author

Mathieu is an individual investor and has been investing part-time for the better part of the past 20 years. He is primarily interested in fundamental analysis, focusing on the long-term and his portfolio is composed primarily of dividend-paying equities. Mathieu has a moderate risk profile and also looks for growth and value. His passion for finance and the markets have led him to his MBA and writing for Seeking Alpha and Stocktrades. Mathieu also focuses primarily on stock research and content production for Stocktrades.ca Premium and the Stocktrades blog.