Blue Bird Is Leading The Charge In School Bus Electrification Amidst Surging EV Appetite: Analyst

BofA Securities initiated coverage on Blue Bird Inc BLBD with a Buy rating with a price target of $26.50.

The analyst notes that Blue Bird has successfully revamped its financial metrics, evident in its EBITDA margin and especially in the cash flow statement, despite facing considerable cost inflation. 

Furthermore, with $5 billion in federal funding increasing and as newer market entrants and competitor suppliers stumble, Blue Bird is poised to dominate the school bus electrification market.

The majority of Blue Bird's revenue stems from non-diesel buses. With the EPA's clean school bus initiative, the appetite for EVs has surged. BLBD anticipates over $1 billion in revenue and more than 3,000 orders from this 5-year initiative. 

The company has bolstered its EV production capacity, leading to a 147% YoY growth in EV bookings in Q3. Currently, Blue Bird's backlog includes firm EV orders worth approximately $180 million.

Blue Bird's reworked approach has seen margin recover (price +17% YoY in Q3), and the firm is proactive in addressing potential incremental costs. With backlog pricing mechanisms in place (+25%) and 5.2k orders in backlog (over $750 million), significant forward visibility should drive an upside in production as supply headwinds fade.

Anticipations for the North American school bus market project over six years of growth surpassing pre-pandemic averages, following reduced demand due to school shutdowns and supply chain challenges. BofA analyst predicts substantial replacement demand driven by healthy municipal financials, a transition from diesel (with Blue Bird notably leaning towards alternative fuels), and federal backing for EV school buses. 

The high entry barriers safeguard market share in this oligopolistic setting, where three dominant entities represent nearly all sales.

Price Action: BLBD shares are up 6.3% at $21.80 on the last check Friday.

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