Greenfield Expansion And Tech Upgrades Will Strengthen Market Presence By 2025

Key Takeaways

• Boyd Group Services' Project 360 is set to enhance margins and earnings through cost savings and operational efficiencies by 2025.
  
• Focusing on greenfield locations and acquisitions, Boyd aims for significant revenue growth and increased market share with future earnings impacts.
  
• Economic uncertainty and rising costs have pressured Boyd’s financial performance, with potential impacts from project expenses and growth investments further affecting revenues and profitability.

Catalysts

Operates non-franchised collision repair centers in North America.

• Boyd Group Services has launched Project 360, expected to result in $100 million in annual recurring cost savings over the coming years, which could improve margins and operating leverage starting in the second quarter of 2025. This is likely to enhance net margins and earnings.
  
• The company has outlined a strategic plan to grow its revenue to $5 billion by 2029, doubling adjusted EBITDA from 2024 to 2029 and achieving a 14% adjusted EBITDA margin, which directly impacts revenue and earnings.
  
• Boyd's strategy includes an expanded focus on greenfield locations to increase market density, possibly enhancing long-term revenue growth and margin efficiency.
  
• Investments in network technology upgrades, scheduled to cost between $10 million to $12 million in 2025 and aligning with a sustainability road map, prepare Boyd for advanced technology needs and potential operational efficiencies, positively impacting net margins and future earnings.
  
• Boyd plans to grow through acquisitions and start-up sites evenly, with 28 greenfield locations planned for 2025, which could contribute significantly to revenue growth and market share expansion.

Boyd Group Services Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Boyd Group Services's revenue will grow by 9.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 0.8% today to 4.5% in 3 years time.
• Analysts expect earnings to reach $180.6 million (and earnings per share of $8.87) by about April 2028, up from $24.5 million 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 26.7x on those 2028 earnings, down from 132.9x today. This future PE is greater than the current PE for the CA Commercial Services industry at 23.0x.
• 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 6.77%, as per the Simply Wall St company report.

Boyd Group Services Future Earnings Per Share Growth

Risks

• Boyd's financial performance was negatively impacted by a significant decrease in repairable claims volume due to economic uncertainty and high insurance premiums, which could pressure future revenues.
  
• Increased operating expenses, as a percentage of sales, due to inflationary growth and the addition of new locations with higher expense ratios, could strain net margins.
  
• Labor rate margins remain below historical levels, potentially affecting gross margins and overall profitability.
  
• The company anticipates initial costs from Project 360, its cost transformation initiative, which could temporarily suppress net earnings before savings are realized.
  
• Rising finance costs and depreciation, driven by growth investments and technology upgrades amid lower sales, have reduced adjusted net earnings, potentially impacting earnings growth.

Valuation

• The analysts have a consensus price target of CA$261.718 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$312.2, and the most bearish reporting a price target of just CA$195.12.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.0 billion, earnings will come to $180.6 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 6.8%.
• Given the current share price of CA$210.66, the analyst price target of CA$261.72 is 19.5% 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.