Blue Bird Corporation recently reported its fiscal second-quarter earnings, showcasing significant growth in the typically stable school bus industry. The company easily surpassed its guidance and Wall Street estimates, leading to a surge in its stock price, now hovering close to the $57 level.
Despite this rally, Blue Bird’s valuation remains at a discount compared to its sector median, suggesting further potential for growth.
Operational Highlights and Forward Guidance
Blue Bird’s earnings report highlighted its substantial revenue growth and robust pricing power, which have bolstered its revenue potential. However, the company also noted potential risks related to increased execution challenges and higher cost inflation, particularly due to its first collective bargaining agreement with the United Steelworkers.
To mitigate potential margin compression, Blue Bird has implemented proactive pricing actions.
While supply chain constraints are expected to ease over time, some challenges remain. Blue Bird is actively working with key suppliers to address these issues. The company’s forward guidance, which factors in these challenges, appears achievable given its upgraded long-term outlook.
Growth Prospects and Market Position
Blue Bird is leveraging a $5 billion federal funding initiative aimed at replacing existing school buses with clean/zero-emission models. Although customers have until April 2026 to make their purchases, the company has already seen a surge in demand for alternative fuel models.
In the first half of fiscal 2024, EV sales comprised 9% of Blue Bird’s total unit sales, and alternative fuel vehicles accounted for 60% of its sales mix, underscoring its leadership in this transition.
The company’s robust $850 million backlog reflects the visibility of its forward guidance and its potential to capture market share. Blue Bird aims to win 30% of eventual orders, further consolidating its market position.
The company is investing in capacity expansion and supply chain resilience, targeting the delivery of 12,000 buses per year and launching its commercial EV chassis by the end of 2024.
Financial Performance and Valuation
Despite challenges, Blue Bird raised its long-term growth model, indicating confidence in navigating uncertainties and leveraging federal funding to replace the aging fleet. The company’s domestic manufacturing capabilities enhance its capacity resilience, supported by the US government’s efforts to protect the nascent EV industry.
Blue Bird’s recent financial performance has been strong, with investors seeing a 1-year total return of over 107%. Despite this, the stock trades at a discount compared to its sector peers, with a forward adjusted PEG ratio of 0.63, more than 60% below the sector median.
The forward adjusted P/E ratio of 21.5x, just below the sector median, could limit near-term upside, but Blue Bird’s solid execution and long-term guidance support a positive outlook.
Blue Bird’s Potential for Growth
Blue Bird Corporation’s recent performance highlights its potential for growth, driven by robust demand for alternative fuel and EV models. Despite near-term execution risks and supply chain challenges, the company’s proactive measures and strong market position provide a solid foundation for continued success.
While the stock’s near-term momentum appears strong, potential volatility could present buying opportunities. With an attractive valuation and demonstrated execution capabilities, Blue Bird remains a compelling investment in the evolving school bus industry.
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Faith is an enthusiastic freelancer and regular contributor to numerous finance blogs, creating valuable pieces to educate individuals on finance and fintech options. As a skilled writer, Faith has created content for diverse industries—if it exists, she’s likely written about it!
