Stock Pick of the Week: Blue Bird ($BLBD)
A trip down memory lane...a look at the leading manufacturer of school buses 🚌
For those joining in for the first time, welcome! Pocket Change is a newsletter where Tony + Karine keep track of and analyze stocks we think are noteworthy (and whether we should invest pocket change into). We’ve been friends since 2013, and have been sending each other stock suggestions and portfolio screenshots over the years. Pocket Change is our way of opening up the conversation and sharing these ideas more publicly. This newsletter goes out every weekend with our analysis and decision for a new stock.
To receive this newsletter weekly, consider subscribing 👇
Summary
🚌 Leading manufacturer of school buses
💰EV: $542M
📉Q3 Revenue: $189M, -38.7% due to COVID
😂 IPO’d via SPAC in 2015
This week, we thought we’d take a little detour from our normal technology stock picks, to highlight a company that may be a nice piece of nostalgia for many, called Blue Bird. Founded in 1927 and headquartered in Fort Valley, Georgia, Blue Bird Corporation is best known for its production of school buses, with more than 550,000 buses sold since 1927 and ~180,000 buses in operation today.
The first Blue Bird Bus was actually a side project for Albert Luce Sr, a Ford franchise owner at the time. After selling a Ford Model T but realizing that the wooden body was not sturdy enough to travel longer distances on the rural Georgia roads, Luce decided to sell his Ford dealership, and concentrate solely on improving bus production, giving rise to the first Blue Bird Bus (pictured below).
Today in the most recent quarter, bus sales are down 1,472 units (-43% compared to last year), and net sales are at $189.2M, 38.7% lower than last year. Blue Bird has obviously taken a hit in volume from COVID due to uncertainty and school shutdowns, but we think Blue Bird is still well-positioned to continue growing from the demand for alternative-fueled bus trend, and this discount in current valuation could be a way to invest in an attractive business for the long term.
Did you know?
“So far this fiscal year, we have either sold or have firm orders in hand for more than 160 electric buses and we expect more to follow with all the customer interest we are seeing for the newest addition to our alternative-fuel lineup. Now there's a lot of interest and buzz around electric-powered vehicles be it buses, be it trucks or be it cars. But there's a lot of hype too from companies that haven't delivered a single product to date,” said CEO Phil Horlock on the Q3 2020 earnings call. Wow, shots fired. In case you didn’t know, he is referring to Nikola which is slated to produce hydrogen-based trucks and is worth $12 billion despite only having a prototype.
Perhaps a little boasting is deserved. Blue Bird in the same quarter had over 160 electric buses sold and in the backlog, and they maintain 64% market share for alternative fuel buses, which includes propane, compressed natural gas. Meanwhile, their largest competitors IC Bus just announced their first order for 18 buses to British Columbia. Certainly the market is heating up, but Blue Bird so far has a leading position.
Another fun fact: Blue Bird actually went public via an SPAC (special purpose acquisition company) in February 2015, which has recently been gaining lots of recent attention in tech news. 😂
Fundamentals
EV: $542M
EV/NTM EBITDA: 8.9x
FY20 Q3 Revenue: $189M, down 38% YoY
How Blue Bird Makes Money
Blue Bird gets 95% of its revenue from selling school buses to a network of dealerships and service centers, and the remaining from maintenance parts. Last year, they sold 11K school buses versus industry sales of 35K, representing ~31% market share.
Each bus sells for an average price of $83K. On a positive note, Blue Bird raised prices by 9% last quarter due to higher mix of electric buses and higher attach rate to customizations. This ability to raise price, despite selling to the government, is a nice benefit of the shift towards a greater electric mix.
Sponsored Section: Are you following us on Public yet? We’ve been loving Public - they’re a new app that makes the stock market social (think Robinhood meets Twitter - where you can follow other investors, see what they’re investing in, and then actually invest). We’re just starting to add more analyses + our Pocket Change portfolio there, so join us! We may receive compensation from affiliate links.
Growth opportunities
Alternative Fuels: Currently, Blue Bird is the leader compared to its competitors in alternative-fueled buses, at 64% market share. Non-diesel solutions, like propane, gas, and electric options have been in high demand - in fact, its electric-powered school bus sales are up +250% in FY20 compared to last year, and recently announced that they are upping their production capacity to 1,000 units annually to meet the demand.
Encouraging Legislation: Some state governments have been encouraging the replacement of school buses for cleaner options, which could attract federal funding and attention as well. In California, the Energy Commission in 2019 awarded $70 million to replace diesel vehicles with electric alternatives, which has made CA the largest electric bus market for Blue Bird. In the same year, Senator Kamala Harris introduced legislation to push for similar adoption at the federal level, which includes $1 billion funding over 5 years to fund a Clean School Bus Grant. While not passed in the Senate, we could see progress on this piece of legislation if Senator Harris is elected as Vice President.
Demand: 25% of the US and Canada fleet are >15 years old, and 95% of these are diesel-fueled. The need to replace aging vehicles, in addition to the demand for electric vehicles that allow for lower operating costs for schools, bodes well for Blue Bird.
Competitors / Risks
COVID-19: An obvious risk for Blue Bird is that with school shutdown + shelter-in-place policies, there is less overall demand and usage of buses. Blue Bird is spending the next months improving its business structure - increasing bus selling price, lowering costs, and developing alternative fueled-buses - but the economy and return to the classroom, of course, remains uncertain. One positive tailwind is that some school districts are requiring social distancing on the bus, such as leaving every other seat open. This could offset the reduced demand due to remote and hybrid learning.
Competitors: The two other competitors in this 3-player market are IC Bus and Thomas, each with ~30% market share respectively. The entire market has been relatively stable, which has supported consistent average selling price and no pricing war.
Key Questions to Ask Yourself (before we think you should buy...)
Do you think school will return to full capacity in the near term, or potentially in a hybrid environment?
Our Take
We think the conditions in the school bus market are temporary, and will return to full capacity in 2021, and Blue Bird is well positioned to take advantage of an upgrade cycle into electric buses. Investors should take advantage of the depressed valuation to invest in this opportunity. It is unlikely a school bus company will go out of business (unlike other electric vehicle companies).
Note this is not investment advice. Please consider doing your own research before making any investments!
If you’re finding this newsletter valuable, consider sharing it with friends, or subscribing and following us on Twitter if you aren’t already. If you have any feedback / comments / suggestions for what you’d like us to analyze, please share with us as well!