Watch: BRP, Stella-Jones and CAE

What to do with securities from BRP, Stella-Jones and CAE? Here are some analyst recommendations that could move prices soon. Note: the author may have a totally different opinion from that expressed by the analysts.

BRP (DOO, $100.67): its depressed valuation offers a good margin of safety
Martin Landry of Stifel GMP predicts another strong quarter for the recreational vehicle maker despite the uncertain economic environment. BRP will release first quarter results on June 1.

The analyst expects earnings per share to grow 44% to $2.38 per share, slightly above the consensus of $2.32.

Its confidence is partly based on the encouraging results and outlook provided on April 25 by rival Polaris Industries (PII, US$106.51).

Earnings of US$2.05 per share, up 55%, beat consensus of US$1.71 as the US manufacturer claws back market share. Polaris also maintained its annual guidance, which suggests consumers are sticking with it, he says.

Certain factors favor BRP in 2024, including the launch of the new Manitou pontoon boat and the momentum provided by market share gains in 2023.

BRP has already warned that the return of promotions will shave 200 percentage points from its margin in 2024. Thankfully, adjusting prices to higher inflation and improving the supply chain will stave off the impact. of these promotions, explains Martin Landry who still keeps an eye on the rivals’ strategy.

The Manitou pontoon should give the marine division a good boost in 2024, although problems with a parts supplier will still delay some deliveries until the end of the summer. BRP predicts a 45-50% jump in marine sales in 2024.

Now that working capital needs are decreasing, BRP could also proceed with a substantial buyback of its shares in the coming months thanks to the free cash flow of one billion dollars expected in 2024. Martin Landry recalls that the manufacturer bought back $250M of shares at $103 each in May 2022 and $350M at $103.50 each in July 2021.

Above all, at the current price, BRP offers a good risk-return ratio. The stock is trading at a multiple of 7 times earnings, or 45% below the historical average valuation, which provides a good cushion if the industry were to slow down, the analyst said.

This margin of safety, the potential buyback of shares and the multiple levers of growth for this quality company hoist the title among its favorites.

Martin Landry renews his buy recommendation and his target price of $150.

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