Analyst Note| Jaime M. Katz, CFA |
We don’t plan any material change to our CAD 111 fair value estimate for narrow-moat BRP after incorporating third-quarter results and updated full-year guidance in our model. While third-quarter sales (CAD 1.59 billion, down 5% versus a year ago) fell short of our outlook, this was attributable to component shortages, rather than weak demand, an issue that has been pervasive across recreational product OEMs in recent periods. Indeed, dealers have struggled to facilitate sales due to low inventory levels (down 44% over last year), and we expect little improvement in dealer inventory availability in the near term as retail sales return to growth in the fourth quarter (with units ahead largely presold). Quantitatively, dealers remain underinventoried by a full quarter level of shipments. On the profit side, the normalized net income level of 8% of sales contracted 360 basis points year over year and was about 50 basis points lower than fiscal 2020 due to lower absorption and higher commodity and logistics expenses.