Expansion With Greenfield Locations And Internalizing Services Will Strengthen Future Performance

Key Takeaways

• Boyd's expansion through new locations and internalizing services is expected to support long-term revenue growth and improve gross profit margins.
  
• Focus on cost-containment and strategic market densification aims to enhance net margins, strengthen market share, and streamline operational efficiencies.
  
• Boyd Group Services faces revenue and earnings challenges due to low claims volumes, high operating expenses, increased finance costs, and uncertain demand.

Catalysts

Operates non-franchised collision repair centers in North America.

• The ongoing addition of new locations and expansion through start-up locations are expected to contribute to incremental revenue growth, despite the current slowdown in acquisition activity. This expansion strategy should support long-term revenue growth.
  
• Boyd's focus on internalizing services such as scanning and calibration is expected to improve gross profit margins by reducing external costs and increasing operational efficiency. This focus can enhance overall earnings potential.
  
• Cost-containment initiatives and restructuring efforts to align operational expenses with current demand levels are aimed at improving net margins. Such measures are expected to streamline expenses and improve the company’s cost structure over time.
  
• Boyd's strategic focus on densifying existing markets with greenfield locations aims to strengthen market share and leverage existing infrastructure. This effort is likely to drive revenue and operational efficiencies, leading to improved net margins and earnings.
  
• The company's commitment to repair-first strategies, use of cost-effective alternatives, and performance-based improvements is expected to mitigate external pressures and support future margin and earnings growth by reducing repair costs.

Boyd Group Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boyd Group Services's revenue will grow by 7.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.3% today to 6.0% in 3 years time.
• Analysts expect earnings to reach $230.5 million (and earnings per share of $9.43) by about February 2028, up from $41.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.9x on those 2028 earnings, down from 87.1x today. This future PE is lower than the current PE for the CA Commercial Services industry at 22.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.78%, as per the Simply Wall St company report.

Boyd Group Services Future Earnings Per Share Growth

Risks

• Boyd Group Services is experiencing low claims volumes, leading to same-store sales declines, which can negatively impact revenue and earnings.
  
• Operating expenses have increased both in dollar terms and as a percentage of sales, driven by lower same-store sales and new locations with higher expenses, negatively impacting net margins.
  
• The company's adjusted EBITDA has decreased significantly due to a decline in repairable claims and a high operating expense ratio, adversely affecting earnings.
  
• Increased finance costs and depreciation expenses, partly due to location growth and technology upgrades during periods of lower sales, could further pressure net margins and earnings.
  
• The current economic conditions and higher insurance premiums are causing uncertainty in demand for services, contributing to a delay in growth targets, which may adversely affect future revenues.

Valuation

• The analysts have a consensus price target of CA$269.573 for Boyd Group Services 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 CA$330.69, and the most bearish reporting a price target of just CA$214.95.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.8 billion, earnings will come to $230.5 million, and it would be trading on a PE ratio of 20.9x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of CA$238.99, the analyst price target of CA$269.57 is 11.3% 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.