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“Is BLBD Stock’s 55% Annual Surge Justifiable for New Investors?”

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Blue Bird Corp. Thrives Amidst Uncertainty: What’s Next for Investors?

Blue Bird Corp. (BLBD) — a key player in the U.S. school bus manufacturing industry — has witnessed impressive stock growth, with a leap of over 55% in the past year. This achievement positions the company ahead of both the auto sector and the S&P 500.

In addition to manufacturing diesel buses, Blue Bird is making strides in automotive technology by incorporating alternative fuels such as propane and gasoline, alongside electric-powered buses. The company has particularly gained from the federal government’s efforts to encourage schools to adopt electric and other non-fossil fuel options.

However, with Donald Trump potentially reclaiming the presidency, questions arise about Blue Bird’s future. With such a robust stock performance, is BLBD still a buy, or is it prudent to cash in on profits? Let’s delve into the details.

Annual Stock Performance Review

Zacks Investment Research Image Source: Zacks Investment Research

Fiscal 2024: Blue Bird’s Remarkable Year

Blue Bird’s strategy to improve operations and enhance efficiency has paid off. Fiscal 2024, ending September 28, 2024, was a banner year, with the company selling 9,000 buses—a 6% increase from the previous year. The average selling price also increased by 14%, resulting in a total revenue growth of 19%, reaching a record $1.35 billion. Additionally, adjusted EBITDA soared to $183 million, more than double from the previous fiscal year, leading to improved profit margins of 13.6% compared to 7.6% in fiscal 2023.

Free cash flow climbed to $99 million, surpassing the goal of 50% of EBITDA. Furthermore, New orders in fiscal 2024 rose by 16% year over year, demonstrating strong market demand. Blue Bird finished the fiscal year with a backlog of 4,800 units, which is a 6% increase from the last year, indicating promising production stability and profitability in the future.

Leading the Charge: Electric Buses as a Key Differentiator

More than just a traditional bus manufacturer, Blue Bird is at the forefront of developing alternative fuel and electric-powered school buses. With about 90% of U.S. school buses still operating on diesel, significant growth potential remains for more environmentally friendly options. The company has already supplied 2,000 electric school buses powered by Cummins’ CMI advanced PowerDrive systems. Its extended partnership with Ford and ROUSH CleanTech, lasting until 2030, enhances its position in the low-emission transportation sphere.

Additionally, an $80 million grant from the U.S. Department of Energy will support a new 600,000-square-foot manufacturing facility, significantly increasing Blue Bird’s production capabilities. The EPA’s $5 billion Clean School Bus Program (FY 2022-2026) also presents a vital opportunity for the company to expand its presence in the electric bus market.

Looking Ahead: Promising Projections for FY25

Guidance for fiscal 2025 reveals expectations for another excellent year, with net revenues anticipated at $1.4 billion to $1.5 billion and adjusted EBITDA predicted to fall between $190 million and $210 million. Even after factoring in $50 million for extraordinary capital expenditures to build the new plant, free cash flow is expected to range from $40 million to $60 million.

The Zacks Consensus Estimate projects an 11% growth in revenues and a 12% rise in earnings per share (EPS) year over year for fiscal 2025.

The company aims for a 14% adjusted EBITDA margin by fiscal 2026-2027, with projected annual revenues hitting $1.6 billion. By 2028, Blue Bird intends to achieve revenues between $1.85 billion and $2 billion, propelled by the production of 11,000 to 12,000 units, including 4,000 to 5,000 electric buses. EBITDA is expected to reach between $270 million and $300 million, with industry-leading margins of 14.5% to 15%, driven by disciplined cost management and enhanced manufacturing processes.

Potential Hurdles Ahead

Despite these strong results, Blue Bird confronts several challenges. Supply chain issues, labor constraints, and seasonal demand variations pose risks.

Additionally, uncertainties related to policy shifts, particularly with the Environmental Protection Agency (EPA) funding under a new administration, could impact the company. Trump’s past actions reflected a lack of support for electric vehicle initiatives; on his first day in office, he reversed Biden’s EV goals and froze unspent funds for EV infrastructure development. He has also suggested the elimination of EV tax credits and has historically favored deregulating the fossil fuel industry, which may affect Blue Bird’s plans if he resumes office.

Assessing Blue Bird’s Valuation

From a valuation standpoint, BLBD trades at a forward 12-month sales multiple of 0.9, significantly lower than the industry average of 2.43 and 30% below its five-year peak. Its Value Score of “A” indicates that the stock remains appealing despite its substantial gains.

Zacks Investment Research
Image Source: Zacks Investment Research

Investment Decision: Buy, Hold, or Sell?

Given Blue Bird’s strong fiscal 2024 performance and favorable growth outlook, it presents a valuable investment option. The company’s leadership in alternative fuels and electric bus production equips it to take advantage of the shift towards greener transportation solutions. While challenges from potential policy changes and operational issues persist, Blue Bird’s proven track record and solid financial standing can help buffer against these obstacles. It holds a robust balance sheet with $127 million in cash and $90 million in long-term debt, further complemented by effective cost management.

For investors weighing their options, the decision hinges on individual investment strategies. If you have enjoyed the gains from the 55% stock rise, considering taking profits is sensible. On the other hand, the company’s strong foundations and optimistic projections make a case for holding or potentially increasing your stake.

Wall Street sentiment around BLBD is positive. Out of seven analysts, five recommend it as a “Strong Buy,” one as a “Buy,” and another as a “Hold,” resulting in a favorable average broker rating of 1.43. The consensus price target of $59.64/share indicates a potential upside of 42% based on current prices.

Zacks Investment Research
Image Source: Zacks Investment Research

BLBD remains a standout choice with a Zacks Rank #1 (Strong Buy). For an extensive list of today’s top Zacks Rank stocks, visit the website.

Top Stock Alert from Zacks’ Research Team

Experts at Zacks have identified five stocks poised for significant gains in the coming months. Among these, the Director of Research, Sheraz Mian, emphasizes one stock that stands out with the most potential for growth.

This leading stock is associated with an innovative financial firm, which boasts over 50 million customers and a range of cutting-edge solutions. Given its momentum, this stock could see remarkable growth. While all selections carry some risk, this particular stock has the potential to outperform prior Zacks recommendations, like Nano-X Imaging, which rose over 129.6% within nine months.

To find out more about our top stock and the four others, access our free report.

Ford Motor Company (F): Free Stock Analysis Report

Cummins Inc. (CMI): Free Stock Analysis Report

Blue Bird Corporation (BLBD): Free Stock Analysis Report

For the complete article on Zacks.com, click here.

Zacks Investment Research

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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