Blue Bird Corporation Stock Analysis: Pricing and Backlog Driving Growth (NASDAQ: BLBD)

Blue Bird Corporation Stock Analysis: Pricing and Backlog Driving Growth (NASDAQ: BLBD)

After a successful 2023 driven by a strong demand environment for Blue Bird Corporation (NYSE: BLBD) products, the first three quarters of 2024 have seen robust double-digit topline growth. The company’s revenue is expected to benefit from the strong growth in electric vehicles (EVs) and higher pricing in the near term. Additionally, longer-term demand is anticipated to be fueled by federal funding of approximately $5 billion in the coming years. With strong pricing and a continued focus on increasing operational efficiency, the company’s margin looks promising for 2024 and beyond. Currently trading below its historical average, the stock presents a good long-term prospect, leading to a buy rating.

## Business Overview

Blue Bird Corporation, an American company, is primarily engaged in designing, engineering, manufacturing, and selling school buses and related parts across the United States, Canada, and internationally. The company operates through two main segments:

**School Buses:** Blue Bird offers a variety of buses, including Type C (Conventional), Type D (Transit Style), and specialty buses with alternate power options such as propane-powered, gasoline-powered, compressed natural gas-powered, and electric-powered.

**Parts:** The company provides aftermarket parts and services to ensure the reliability of their buses for maintenance and operation.

Known for its innovative and reliable buses, Blue Bird has a significant presence in North America with a strong dealer network and sales support services for its customers.

## Last Quarter Performance

Moving into the second half of the year, Blue Bird continued to experience strong double-digit topline growth as demand for its products remained robust. While the volume growth was flat year-on-year, the company’s revenue growth was primarily driven by higher pricing and an improved mix of Type D and EVs. The pricing grew by 13% year-on-year, resulting in a 13.3% increase to $333.4 million in the company’s topline compared to the prior-year quarter.

Strong price realization and a favorable mix of higher margin Alternative Powered Vehicles contributed to the company’s margin growth during the quarter, with an adjusted EBITDA margin reaching 14.5% in the third quarter of 2024. Labor and material costs increased during the quarter, partially offsetting the benefits from strong pricing and a favorable mix. Additionally, the company’s adjusted EPS more than doubled to $0.91 from $0.44 a year ago, surpassing consensus estimates by $0.40 in the third quarter of 2024.

## Outlook

With strong double-digit topline growth in the first three quarters of 2024 and a mid-teen growth expected in the last quarter, Blue Bird is poised for another exceptional year. Market demand for the company’s school buses remains high, and increasing order share with favorable pricing should drive further topline growth. The company’s backlog levels are strong, currently valued at approximately $775 million with over 5200 buses.

In the last quarter, order bookings for EVs grew by 38%, leading to an EV order backlog of 567 units worth about $180 million, an 11% year-on-year increase. Despite reducing its EV sales outlook by about 100 units due to EPA orders and delivery timing, the company’s strong backlog level is expected to drive sales growth in the future.

Federal funding for clean and environment-friendly school buses, such as the EPA’s allocation of $5 billion, is anticipated to benefit Blue Bird’s sales beyond 2024. The company’s focus on future expansion plans, including an $80 million grant to increase EV production, should support anticipated demand growth and lead to long-term topline expansion.

## Valuation

Blue Bird’s stock has provided approximately 150% returns to investors in the past year, with a Non-GAAP forward P/E ratio of 14.74 based on FY24 EPS estimates of $3.35. Looking ahead to FY25 with EPS estimates of $3.63, the stock’s forward P/E is 13.63, representing a notable discount of over 50% compared to its five-year average P/E of 30.25x.

Expectations for continued revenue growth, driven by strong demand and improved margins, suggest further enhancement in the company’s stock valuation in the future.

## Conclusion

Blue Bird Corporation’s stock is currently trading at a discount to its historical averages, presenting an attractive investment opportunity. With a strong focus on operational performance and a promising outlook for revenue growth, the company is well-positioned for long-term success. Considering the company’s market position and growth prospects, buying the stock at current levels is recommended.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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