This week’s newsletter will focus on my Value Call, which is typically an in-depth report I will release on a Stocktrades Premium featured company that I find attractive at this point in time.
I usually produce these Value Calls right after earnings season has concluded, as the round of earnings gives me some insight into company operations and management outlook.
First, I want to make one correction to my email last week:
Toronto Dominion Bank did not raise the dividend. There was a data error on Ycharts indicating that TD Bank made a 2.9%~ dividend raise to $1.08 per share when, in fact, it didn’t. I got an email from a member stating this, and after doing some digging, I concluded that there was no dividend raise. I apologize for this!
Now, let’s get back to the newsletter, starting with a few portfolio moves I made last week.
My portfolio moves
It was a relatively simple week for me, adding to my Cargojet (TSE:CJT) and Amazon (AMZN) positions. Cargojet is a Bull List stock and a newer position I am currently building out in my portfolio. I plan for the company to make up around 2% of my overall portfolio, and at this point in time, it sits at 1.5%.
I realize the company looked a lot more attractive in the low $70 level it reached not too long ago. In hindsight, it would have been much better for me to simply deploy my entire position at that time. However, my initial plan was to build the position out over a 3-4 month period to potentially mitigate some volatility in terms of tariff impacts.
Usually, when I put a plan/thesis in motion, I stick to it. It helps me control all emotional decisions and make most purchases routine and status quo.
The other addition to the portfolio is one that many will be familiar with, and that is Amazon, the former Value Call last quarter. I have mentioned I want to get my position sizing on Amazon from 3.5%~ previously to 5-6% now. It currently sits at 4.5%, and expect routine additions from me over the coming months until it hits that sizing.
Overall, it was a solid May for me, with my portfolio up 4.10%.
June Value Call – Boyd Group Services (TSE:BYD)
Boyd Group Services returns as yet another Value Call here at Stocktrades Premium. It was previously highlighted in 2024, before going through a large runup in price, but has now been hit with multiple headwinds that I believe are temporary and that patient investors will be rewarded.
I’ll dive into that a bit later. Let’s first look into the business and the issues it’s facing.
The headwinds impacting the company at this point in time
Boyd is an autobody and glass company. When you’re in a wreck with your vehicle, there is the potential you are taking your vehicle to Boyd to be serviced, whether it be through your insurance company or cash out of your pocket.
I say “the potential” to go to Boyd because it owns a single-digit market share of the collision market in North America. However, this isn’t as bearish as the statement may seem. In fact, it’s bullish. That is because although Boyd owns a single-digit percentage share of the collision market in North America, it is the 2nd largest player in the space.
It has had outstanding success at acquiring mom-and-pop collision repair shops, improving margins, and ultimately driving profitability.
However, one of the main headwinds right now is from the insurance end of the business.
Used automobile pricing has fallen, resulting in fewer repairable claims
I’m sure you’ll remember how limited supply was because of the semiconductor shortage, especially if you were in the market for a new vehicle during the pandemic. Dealership lots were empty, which resulted in the price of used vehicles skyrocketing.
As a result, many insurance companies were forced to issue repairable claims on vehicles. Now, we’re in a bit of the opposite environment.
Repairable claims are falling because used vehicle prices are falling. As a result, more and more insurance companies are sending vehicles to the wrecker rather than the repair shop and paying customers a write-off.
I’ve attached a chart below showing the trend of used and new auto prices over the last 2.5 years to give you an idea.
Consumers are being more cautious around vehicle repairs
Not all damage done to vehicles goes through insurance. In fact, the company has plenty of non-insurance repair bookings. However, because of the softness of the consumer in North America right now, that dent or scratch one would get repaired in a strong macroeconomic environment might be one they opt to defer until later.
This is the end result of higher interest rates, higher costs of living, and consumers who are worried about the overall economic environment at this time, whether it be their employment, tariffs, or even the cost of renewing their mortgage.
The tightening consumer is hitting deductibles, hurting claim volume
If you haven’t noticed, insurance costs seem to be rising year after year. As many companies try to recoup lost profits from catastrophe losses, ultimately, it is consumers who pay the price. You’ll notice above I snapshotted an article about home insurance. However, make no mistake about it, this is happening in the auto space as well.
Many consumers are doing the easy thing in order to save on their insurance premiums. They’re raising their deductible. One who can take their deductible from $250 to $1000+ will save every month on premiums.
However, on the opposite end of this, one who has a $250 deductible might see a $1500 repair bill as a no-brainer to go through insurance. While another with a $1000 deductible might not feel it is worth it.
This is hitting claims volumes as well, ultimately causing slower same-store sales.
Why I feel these headwinds will be temporary, and same store sales growth will resume
I never want to hinge my main investment thesis on something that depends on current economic policy.
In this instance, however, I believe there could be short-term tailwinds for a company like Boyd in regards to tariffs that will ultimately result in same-store sales coming back to that mid single-digit level it is used to and then being maintained in that range. Look to the chart below, particularly pre-pandemic.
Tariffs in the auto sector and things like steel and aluminum have a realistic possibility of pushing new automobile prices up. Manufacturers simply will not eat all of the costs associated with this.
And, as I’ve mentioned earlier, if new vehicle prices go up, demand for used vehicles is going to go up, ultimately driving prices higher. In this instance, we should see repairable claims increase again, as insurers will write off fewer vehicles.
Despite a rough environment, Boyd continues to gain market share
When one looks to Boyd’s low single-digit decline in same-store sales, they would automatically assume it is a bad thing. After all, we don’t really want to invest in companies with declining sales.
However, the low single-digit decline is bullish, especially when we compare it to the industry overall. Across North America, the auto repair industry is witnessing high single-digit declines in overall same-store sales. So, what does this mean for Boyd, who is reporting a 2.8%~ decline? It means they are gaining market share in the industry.
Here is the direct comments from its conference call:
“Boyd continued to deliver market share gains during the first quarter of 2025 posting same-store sales declines of only 2.8% in a market where declines in repairable claims were estimated by industry sources to be down in the range of 9% to 10%.”
Ultimately, when things do turn around, this should benefit the company as there is the potential for outsized growth.
Industry leaders tend to navigate rough economic conditions better than their competitors, which will allow them to come out of this well ahead of the competition.
Guidance points to outsized returns
Let’s get one thing out of the way before I discuss this. Just because a company guides to a particular number does not mean it will hit that number. However, historically, Boyd has been good at hitting its overall projections.
Yes, it did miss its previous 5-year targets (from 2019 to 2024) by a small amount. But when we consider the economic environment they were in and how they were well on their way to exceeding targets prior to this, I do feel they still have a relatively good pulse on the overall market and their ability to hit guidance.
The company expects $5B USD in revenue and $700M in EBITDA by 2029. In 2024, the company generated $3B USD in revenue and EBITDA of $335M USD.
This works out to be a 10.1% compound annual growth rate on revenue and a 16% on EBITDA. Although there is no guarantee of future market returns, I would be surprised if Boyd did not provide outsized returns at this current share price if it can hit those targets.
Valuations continue to look attractive
As I have mentioned previously, I believe the best way to value Boyd Group is on a price-to-operating cash flow basis and a price-to-free cash flow basis. Because the company is acquisition-heavy and equipment-heavy, it has a lot of depreciation and amortization on the balance sheet, which impacts earnings per share but not necessarily the actual cash flow generation of the company.
When we look to both these valuations, Boyd is trading at large discounts to what it has typically traded at over the last decade. Let’s have a look at price-to-operating cash flows:
And a price-to-free cash flow basis:
On a price-to-operating cash flow basis, the company is trading at a 30% discount to its 10-year historical average. On a price-to-free cash flow basis, it trades at a 20% discount.
I do believe at some point this company will return to historical averages, or at least close to them. Because of the difficulties in the auto market right now, the company is firmly in the penalty box by the market, and rightfully so. It has struggled. However, every company in this industry has struggled, and Boyd has simply been the best of the bunch.
The company is relatively sheltered from tariffs
Unlike an automobile company like Magna International, which is heavily exposed to tariffs, Boyd is not. In fact, the company views the tariffs as neutral in the worst case and beneficial in the best case.
Here is the direct commentary from their call: “I mean, we kind of view the tariff situation as a positive to neutral for us, just driven by the fact that I think a couple of manufacturers have come out with price increases on new cars ranging from $3,000 to $10,000.”
This is because as tariffs persist, it will drive vehicle prices up, increasing the demand for the repair of older vehicles, whether it be from consumers wanting to fix things on their own or insurance companies sending vehicles to Boyd for repairs.
Tariffs are among the least of my concerns with Boyd. If the parts it needs to repair vehicles increase in price, it should be able to easily offset those costs through negotiations with insurance companies.
Overall, the outlook is murky, but the long-term looks promising
Boyd is a company I have been adding for the better part of two years now. As a long-term investor, I don’t need to chase the immediate reward of returns. Instead, I can accumulate strong companies at reasonable prices and ultimately reap the benefits 5 years from now, 10 years from now, or even 20 years from now.
In fact, it wouldn’t really bother me much at all if Boyd’s stock price stayed flat over the short term. It would simply allow me to accumulate more shares. I have adopted this mentality by having a strong investment thesis, one that is based on the core fundamentals of the company, and when that thesis remains valid, I buy.
It also comes from the understanding that as investors, we need to know we own businesses when we buy these stocks, not just blips on a screen.
Although it is tempting to chase the immediate rewards of the market, especially in a large bull market, it’s important to keep a level head, know what you own and why you own it, and continue to buy strong companies and hold them for the long term.
I believe over the long term Boyd will be a winner, and I do believe there is a margin of safety here.
