Blue Bird Corp. (NASDAQ:BLBD): A Potential Drive to 90% Gain

We came across a bullish thesis on Blue Bird Corp. (NASDAQ:BLBD) on ValueInvestorsClub by leob710. In this article, we will summarize the bulls’ thesis on BLBD. The company’s shares were trading at $41.00 when this thesis was published, vs. the closing price of $40.30 on Jan 13.

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BLBD designs, engineers, manufactures and sells school buses in the United States, Canada, and internationally. The company operates through two segments, Bus and Parts. It offers Type C, Type D, and specialty buses; and alternative power options through its propane-powered, gasoline-powered, compressed natural gas-powered, and electric-powered school buses, as well as diesel engines.

The school bus industry is tightly regulated with high barriers to entry. The market share is almost equally split between three major players namely BLBD, Thomas Built and International. BLBD has a competitive advantage over the others when it comes to non-diesel alternatives. 60% of the revenue for BLBD comes from the non-diesel segment while it is 10-20% for its competitors. In an industry where product differentiation is limited, the growth is expected to be driven by electric alternatives, a niche in which BLBD has the upper hand. The fact that the average school bus age is 11 years should provide enough tailwind for the industry to grow.

There has been a margin expansion boosted by a leaner firm structure and inflation-indexed pricing. The gross and EBITDA margins prior to 2024 were 12-14% and 7-8%. With the latest developments, the gross margin improved to 14.5% in Q3-24 and the EBITDA margin to 14.5%. ROIC has always been robust at 20-30% but with a better cost structure, the ROIC has improved significantly to 40-50%. The management expands further improvement in these figures as the product mix tilts further away from diesel-powered buses.

The share has been trading at 7.2x trailing EBITDA. A more reasonable multiple would be 8.5x due to its stable business and high ROIC. The demand for EV buses should propel the EV to $230 million by 2027. Using the higher multiple, the intrinsic value of the share is $78 or 94% higher than its current market price.

While we acknowledge the potential of BLBD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BLBD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.