International Expansion And Volare Fly 12 Launch Will Open New Market Segments

Key Takeaways

• Recovery in Brazilian bus production and international expansion are key drivers of revenue growth and improved earnings.
  
• Innovation in decarbonization and automation should enhance operational efficiencies and capture new market segments.
  
• Dependence on temporary programs and stable raw material prices, alongside post-COVID volatility and labor shortages, poses a risk to sustained growth and market share.

Catalysts

Engages in manufacture and sale of bus bodies in Brazil, Africa, Argentina, Australia, China, the United Arab Emirates, and Mexico.

• The recovery in Brazilian bus production, expected to reach 2019 levels, signifies increased demand that should drive revenue growth for Marcopolo.
  
• The company's international expansion, especially in markets like Australia, South Africa, and Mexico, can enhance revenue and improve earnings due to better operational efficiencies and increased production volumes.
  
• Introduction of innovative products focused on decarbonization and new models like the Volare Fly 12 could capture new market segments and boost revenues.
  
• The emphasis on reducing working capital and increasing industrial automation should improve operational efficiencies and potentially lead to enhanced net margins.
  
• The stabilization and possible extension of government programs like Paths to School could maintain high production volumes in Brazil, supporting sustained revenue and earnings growth.

Marcopolo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marcopolo's revenue will grow by 11.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.6% today to 13.6% in 3 years time.
• Analysts expect earnings to reach R$1.5 billion (and earnings per share of R$1.43) by about February 2028, up from R$1.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 8.1x today. This future PE is greater than the current PE for the BR Machinery industry at 8.1x.
• Analysts expect the number of shares outstanding to grow by 0.05% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.71%, as per the Simply Wall St company report.

Marcopolo Future Earnings Per Share Growth

Risks

• Marcopolo's growth is partly driven by a temporary government program, the Paths to School, which if not renewed or extended, could lead to decreased revenues. (Revenue)
  
• The company's reliance on raw material availability and prices, which are currently stable, poses a risk if inflation or demand for commodities increases, potentially squeezing margins. (Net Margins)
  
• A significant part of the growth is attributed to recovering markets and post-COVID adjustments, which may not be sustainable long-term, impacting future earnings stability. (Earnings)
  
• Marcopolo's focus on increasing operational efficiency in international markets like Argentina and Mexico is ongoing, and failure to achieve expected improvements could affect profitability. (Net Margins)
  
• High competition with capacity constraints due to labor shortages may limit the ability to meet market demand, affecting the company's ability to maintain or grow its market share. (Revenue)

Valuation

• The analysts have a consensus price target of R$10.987 for Marcopolo based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$13.0, and the most bearish reporting a price target of just R$10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$10.9 billion, earnings will come to R$1.5 billion, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 19.7%.
  
• Given the current share price of R$8.34, the analyst price target of R$10.99 is 24.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.