Blue Bird Drives Growth with Strong Momentum and Strategic Fundamentals

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Written By Elizabeth Monroe

Blue Bird (NASDAQ: BLBD) operates in the school bus manufacturing industry, characterized by stable fundamentals and significant growth opportunities driven by the transition to electric buses and the aging school bus fleet.

Recent upward revisions in guidance for FY2024 have bolstered investor sentiment, highlighting the company’s compelling valuation and strong growth prospects.

Investment Thesis

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Blue Bird operates within the niche market of school bus manufacturing, a sector known for its stability and high barriers to entry.

Despite recent volatility in its stock price, the company remains well-positioned for growth due to clear catalysts such as the aging school bus fleet and the increasing adoption of electric buses.

These factors, coupled with a reasonable valuation and robust momentum, make Blue Bird an attractive investment opportunity.

Industry Landscape and Competitive Advantages

Blue Bird specializes in manufacturing and distributing school buses primarily within the United States, with a smaller portion exported to Canada and other international markets.

The industry is dominated by a few key Original Equipment Manufacturers (OEMs), including Blue Bird, which benefit from high barriers to entry. Strict compliance with safety standards and established client relationships contribute to these barriers, ensuring long-term customer loyalty and stability in market share.

Growth Drivers

The school bus industry is experiencing favorable tailwinds, notably driven by the aging fleet of buses currently in operation. A significant portion—more than 40%—of these buses are over 10 years old, indicating a substantial market opportunity for replacements.

With buses priced between $60,000 and $150,000 each, this translates to a potential market size ranging from $13 billion to $33 billion, significantly larger than Blue Bird’s 2023 revenue of $1.13 billion. This demographic trend underscores a robust demand outlook for the company in the coming years.

Additionally, the shift towards electric vehicles, supported by government initiatives such as a recent $700 million program aimed at purchasing electric heavy-duty vehicles, presents another growth avenue for Blue Bird.

Currently, a majority of the company’s bus sales derive from alternative fuel sources, including electric, positioning Blue Bird favorably to capitalize on this accelerating trend towards sustainability in transportation.

Valuation and Financial Outlook

Following an increase in guidance for FY2024, Blue Bird’s stock surged by more than 70% in a month, reflecting positive investor sentiment towards its growth prospects.

Despite a subsequent 16% decline, the company’s valuation remains reasonable. For instance, based on updated EBITDA guidance of $155 million for the year, applying a conservative multiple suggests potential upside in the near term and over the next five years, assuming continued annual growth in EBITDA.

Historically, Blue Bird has traded at an EV/EBITDA multiple of 10-12 times, indicating that its current valuation aligns with past performance trends.

This valuation approach supports the thesis of investing in Blue Bird at a favorable entry point, especially given its strong momentum and growth trajectory.

Compelling Investment Opportunity

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Blue Bird presents a compelling investment opportunity driven by its solid fundamentals, strategic market position, and strong growth catalysts.

Despite the inherent risks associated with a mature industry and potential future growth stabilization, the company’s current valuation and growth potential make it an attractive prospect for investors seeking long-term capital appreciation.


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