Ski-Doo snowmobile manufacturer BRP Inc is well positioned to pick up market share, according to analysts at Stifel GMP.
The firm reiterated its ‘Buy’ rating and $150 price target after meeting with the company earlier this week.
BRP shares traded 0.6% higher Thursday afternoon at $97.28, which analysts consider a valuation discount.
“Shares of BRP have been under pressure recently on fears of a consumer slowdown,” analysts said. “Visibility on demand trends is limited and investors are taking a cautious approach as a result.”
“It is difficult to assess when this deep valuation discount will abate but we believe that it could remain for most of the year. Our view is that current valuation should generate appealing returns when the re-rating occurs and that investors with a long-term view should stay invested and weather the storm.”
BRP could take market share if difficult market conditions force other OEMs to review their offerings and pull back from segments where volumes don't justify the investment, the firm said.
“We believe that a slowdown in demand could be beneficial for the stronger OEMs in powersports, analysts said. “...In the personal watercraft and snowmobile industries there are OEMs with mid-to-low single digits market share. The sales these OEMs generate from personal watercrafts and snowmobiles may not justify the investment in innovation and R&D needed.”
Analysts also noted that the company’s current valuation may be too pessimistic in regard to sales projections.
“[The] current valuation suggest[s] a decline of 20% in sales,” analysts said. “...Assuming BRP's historical valuation multiple of 13x forward earnings, investors are currently reflecting a forward EPS of ~$7.50.”
“In our view, these assumptions are drastic and perhaps too punitive”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
Follow him on Twitter @andrew_kessel