According to Globe and Mail stock market analyst David Milstead, the smart thing for investors to do is buy DOO – that's short for Ski-Doo.
Milstead suggests that with Bombardier’s (the jet maker) recent woes – the shares have dropped below the $2 mark – the family’s stake in BRP (the Ski-Doo maker) of about $1-billion is now roughly double the value of its equity holdings in Bombardier.
The margin would be even greater had BRP held its June highs of nearly $30 a share. But investor worries about BRP’s sales in Western Canada and general squeamishness about the sport vehicles sector have prompted a nearly 20-per-cent drop in the stock.
Unlike Bombardier’s woes, however, BRP’s decline seems a temporary one. Analysts agree – according to Bloomberg, 11 of 14 who cover the company have a buy rating, and the average target price of $31.45 represents a nearly 30 per cent gain over Friday’s close of $24.24. Clearly, the suggestion for investors: The thing to do is to buy DOO.
At BRP’s semi-annual dealer showcase in Nashville last month, the company revealed its solution: The Can-Am Defender SxS. Martin Landry of GMP Securities says the Defender lineup “generat[ed] most of the buzz” and dealers seemed pleased with the engine on the new SxS model.
“We believe that BRP is now much better equipped to compete with industry-leading Polaris in the important SxS segment,” Mr. Landry says, with the potential to add dealers to its distribution system and take floor space away from other vehicle makers. “We believe that this new product lineup could bring back [earnings-per-share] growth rates into the double-digit range in the coming years.” (Mr. Landry has a $31 target price.)
Western Canada is a big part of the problem, as sales there declined nearly 25 per cent in the second quarter from the soft economy. (BRP gets 20 per cent of its annual sales from Canada, Mr. Poirier says, but doesn’t specify how much come from each region or province.) The company is also cautious about the sales outlooks in Latin America and Russia because of political instability, with Russia being a key second-half market because of snowmobile sales. Plus, there’s a “fiercer competitive landscape” in the United States, says Mr. Poirier.
Read the entire Globe and Mail article here....
Source: Globe and Mail, Saturday October 3, 2015
