BMO Capital Markets has adjusted its outlook on BRP (NASDAQ:DOOO) Inc. (DOO: CN) (NASDAQ: DOOO), reducing the price target to Cdn$100 from Cdn$115, while maintaining an Outperform rating.
The adjustment follows BRP's second-quarter fiscal year 2025 results, which met expectations but were accompanied by a significant cut in the company's guidance for fiscal year 2025.
The reduction in BRP's guidance is attributed to weaker-than-anticipated retail trends, which have led to more aggressive production cuts and increased promotional activity.
These measures are part of BRP's strategy to reset its distribution channels. Despite the change in guidance, BMO Capital Markets views the company's management strategy as cautious and appropriate given the current economic uncertainty.
The firm anticipates that BRP's production levels and promotional activities will start to stabilize in fiscal year 2026. However, due to the softer start to the year and a potentially extended period of normalization, BMO Capital has revised its estimates downward.
The analyst from BMO Capital Markets shared insights on the recent developments, "DOO's FY2Q25 results were basically in line, and while we think most investors were expecting an FY25 guidance cut, the magnitude was surprising."
The analyst further explained the reasoning behind the revised guidance, stating, "The guidance reduction stems from weaker-than-expected retail trends leading to more aggressive production cuts and promotional intensity to reach DOO's channel reset target."
BRP disclosed its fiscal year 2025 second-quarter results, unveiling a revenue of $1.8 billion, normalized EBITDA of $199 million, and normalized EPS at $0.61. The company managed to decrease network inventory by 13% and targets a further reduction of 15% to 20% by the end of the fiscal year.
In response to economic pressures, BRP announced deeper production cuts to maintain dealer health. Baird maintained an Outperform rating on BRP shares, albeit with a lowered price target of $68 from $77 following these developments.
Despite an 18% downturn in North American retail sales due to increased competition and lower consumer demand, BRP remains committed to expanding in the electric vehicle market. The company adjusted its yearly guidance, projecting revenues between $7.8 billion and $8 billion, normalized EBITDA between $890 million and $940 million, and normalized EPS between $275 million and $325 million. BRP management indicates that this period of correction in production and inventory levels may continue for another 12 to 18 months, reflecting broader economic impacts on the powersports industry.
InvestingPro Insights
BRP Inc .'s (NASDAQ: DOOO) strategic decisions in the face of economic headwinds have caught the attention of investors and analysts alike. Notably, management's proactive share buybacks signal confidence in the company's value, as reflected in one of the InvestingPro Tips. Furthermore, the company's commitment to shareholder returns is evident in its track record of raising its dividend for three consecutive years, an encouraging sign for income-focused investors.
InvestingPro Data underscores the current market sentiment, with a market capitalization of $4.59 billion and a P/E ratio of 25.92, suggesting investors are willing to pay a premium for earnings. Despite a challenging environment highlighted by a 17.83% revenue decline over the last twelve months as of Q2 2025, BRP has managed to maintain a gross profit margin of 23.65%. This resilience is crucial as the company navigates through the retail trends and production adjustments that have prompted the recent guidance revision.
Investors should note that the stock has experienced significant volatility recently, with a one-week price total return of -13.08% as of the last recorded date in 2024. However, the InvestingPro platform offers additional insights, with over 9 tips available, which can provide a deeper understanding of BRP's financial health and future prospects. For those seeking to make an informed decision on BRP, these tips and real-time metrics may be valuable resources.
For more detailed analysis and additional InvestingPro Tips on BRP Inc., interested parties can visit https://www.investing.com/pro/DOOO.
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