On Thursday, Blue Bird Corp (NASDAQ:BLBD), a manufacturer of school buses, received a Buy rating from a Needham analyst, with a set price target of $44.00.
The firm's optimistic stance on the company is driven by the anticipated growth in Blue Bird's core school bus business, which accounts for 90% of its bus order backlog.
The analyst believes that following several years of underinvestment in the industry, there is a cyclical tailwind that will propel growth, especially with the shift towards higher-priced electric vehicle (EV) school buses.
The coverage initiation is supported by industry channel checks with school bus distributors and Blue Bird's performance over the previous two quarters, which the analyst finds to affirm their thesis. These factors lead to the expectation of sustained annual growth of around 10% and margin expansion for the company over the coming years.
The analyst's $44 price target for Blue Bird's stock is based on a 10 times enterprise value to adjusted EBITDA multiple, applying their fiscal year 2025 estimates.
The positive outlook is further bolstered by the belief that the stock could experience multiple expansions. This is due to it currently trading at a compressed valuation while consensus estimates have been rising in response to the company's improved prospects and execution.
Blue Bird's transition to electric school buses appears to be a key component of the company's growth strategy. This move is expected to not only cater to the increasing demand for environmentally friendly transportation options but also contribute to the company's revenue due to the higher price point of EV buses compared to traditional models.
Blue Bird's focus on its legacy school bus business, combined with the strategic shift towards electric buses, positions it to potentially capitalize on the current market dynamics as outlined by the analyst from Needham.
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