Company: Blue Bird Corp
Business: School bus manufacturing
Ticker symbol: BLBD
Listing: Nasdaq USA
Market cap: 720 Million USD
Share price: 26,55 USD
Turnover: 879 Million USD in 2020
Blue Bird Corp (BLBD) is the leading school bus manufacturer in the US that has developed an electric vehicle solution already available for large scale commercialization. With schools about to open up again, BLBD will face an explosion of pent-up demand for electric school buses. BLBD is significantly undervalued relative to EV peers and even more so as a reopening play.Biden’s 500,000 electric school buses in five years plan is a great opportunity for BLBD’s school bus niche. A narrative shift comparable to the contract that moved Workhorse’s valuation to $4B+ will most likely move BLBD multiples a lot higher.
Peer evaluation comparison:
As you can see above Blue Bird Corp is massively undervalued to comparable peers at least when it comes to using EV/revenue as an evaluation multiple which is something that the EV market in general looks to as a meaningfull comparison.
The three noted electric school bus peers above are valued on future revenue and largely unproven business models. Unlike its peers, Blue Bird Corp has a proven fleet of reliable vehicles, along-side electric buses already being commercialized. As opposed to speculating on growth in future years, investing in Blue Bird Corp, which is not only profitable, but already controls a majority stake of the EV market for school buses could be a wise choice.
Undervalued and Underappreciated
Blue Bird Corp (BLBD) is an undiscovered powerhouse in the electric vehicle (EV) space. Its most likely the best EV value for money in the market today and is set to dominate the upcoming EV school bus manufacturing explosion.
BLBD is the leading independent designer and manufacturer of school buses in the United States, with over 150,000 buses in operation today. BLBD is also the market leader in alternative fuel applications with its propane powered, electric, and compressed natural gas-powered school buses. BLBD is most likely the immediate front runner to capitalize on the school bus electrification plans of the Biden Administration. With child safety of the utmost importance, we believe BLBD’s decades of experience in manufacturing buses and its extensive relationships with school boards, give it a powerful edge against competitors.
To date, BLBD is and remains the #1 electric school bus manufacturer in the US. On 12/9/20, BLBD announced it had delivered its 300th electric school bus, more than every other company combined. As noted on page 8 of BLBD’s 7/21/20 investor presentation, an electric school bus currently costs $350K vs. $100K for its diesel fueled one. Although the 3.5x premium appears pricey, the operational and maintenance costs are lower compared to diesel. With federal mandates now enacted, subsidies will cover the lion’s share of the cost.
BLBD has a 20-year history of profitability, and a reputation for safety. With children’s safety playing the most critical role in the decision-making process, we think BLBD will be the obvious choice for schools and districts. An example of bus safety gone bad, BLBD’s competitor Proterra’s entire fleet was taken off the road in February 2020 in Philadelphia due to mechanical issues – the third fleet issue identified within a year.
Biden’s election victory over Trump was a big victory for BLBD. Immediately after inauguration, Biden instituted his “Back to School” reopening pledge. We believe this provides a near-term margin of safety for getting school buses back on the road, and for BLBD’s business to accelerate forward again. Horlock stated on 2/10/21 in the fiscal Q121 earnings call:
When schools are closed, buses aren’t being ordered. The good news is that when schools are open, it’s business as usual, with school bus orders being placed. That’s great for us to know as we move forward. Following the recent holiday break, however, we have been seeing more schools resuming in-classroom teaching, and that’s led to increased quarter activity for our new buses.
As stated in this article, Biden wants to open most schools within his first 100 days in office. Biden called on Congress to direct at least $130B to schools, and $350B to state and local governments to help prevent school layoffs. Teachers remain on track as the next in line to receive a COVID vaccine after essential workers. We think the clear path forward will make for an aggressive buying season for EV school buses as early as the fall.
Evaluation and business case Summary
At its current valuation, BLBD provides ample margin of safety on the legacy school bus business, with multi-bagger upside on the inevitable conversion to electric.
If the Biden administration is serious about replacing the 500,000 school buses to electric within 5 years, BLBD will need a lot more capacity. For example, if BLBD reaches a production capacity of 10K school buses per year, that would give the company $3.5B in annual revenues for its electric school buses. If we apply an EV/Revenue evaluation of 5 for BLBD ( which is 50 % below Proterra’s current multiple) we get a market cap of 17,5 billion USD. Compared to todays market cap of 720 million USD. This example equals an upside of staggering 24 times todays share price = 645 USD and that based on relatively conservative multiples for the EV sector.
Remember the US market for switching 500 000 school buses to electric propulsion is worth 100 billion USD and the evaluation example above only assumes a market share of 3,5 % of this, and thats for the market leader in the alternative fuels sector of school buses namely Blue Bird Corp.
Credit in this post is given to White Diamond Research which created the original report on this great company.
As always do your own research and this is not to be considered financial advice in any way.