BMO Capital Markets analyst Gerrick Johnson has provided Powersports Business with a research note after BRP reported its Q2 fiscal year 2021 results on Tuesday, Sept. 1.
The following is Johnson’s report:
BRP’s (DOO) FY2Q21 EPS results easily exceeded our and Street expectations, though we imagine were closer to investor expectations. Retail demand remains robust, and DOO’s reinstated FY21 guidance returns the annual outlook to near pre-COVID-19 levels. Management has a high degree of confidence that current retail trends will continue this year and beyond. The appeal of outdoor recreation as a family-based, socially distant activity in the new COVID-19 world is strong, and new customers can provide some legs. But we rate shares Market Perform owing to an elevated valuation and growing risks from economic, pandemic, and election uncertainty.
DOO reported FY2Q21 EPS of $1.14, well ahead of our ($0.35) expectation, Street consensus of ($0.23), and $0.71 reported in FY2Q20. DOO reinstated FY2021 guidance, now expecting revenue to decline -5% to -9% ($5.75 billion to $5.51 billion) with EPS of $3.65-3.95.
This new guidance will bring Street estimates close to forecasts published prior to the COVID-19 outbreak ($6.4 billion revenue & $4.38 EPS). The bull case would be that we are back to pre-COVID-19 levels with the debate changing from whether the industry is in late cycle to whether it is at the beginning of a new cycle. The bear case would be that we are close to pre-COVID-19 levels but with a lot more risk than we had then (global pandemic, shaky economy, US presidential election).
DOO’s NA powersports unit retail increased +40% in 2Q, in line with our expectation. Dealer inventory ended the quarter down -51%. DOO commented that it will likely take several quarters to bring inventory back to optimal levels.
Management is confident that current trends will continue, and for many years, and will build a new factory to increase SxS capacity 50% to capitalize. We are surprised by the level of confidence coming from the leisure/powersports companies we cover, the same teams that were cutting dividends, maxing out credit facilities, and instituting hiring freezes at the outset of the pandemic, ending up being as surprised as anyone about the ensuing consumer strength. And as recently as May 27, DOO issued 2Q revenue guidance that was off by $350 million. The miss swung the right way, but it was a poor forecast nonetheless. FY2Q21 revenue declined -16% to $1.23 billion, easily beating our $890 million estimate (-39%), and the Street’s $953 million (-35%). But the worst forecast of the group happened to be company guidance.