North American Demand And Emission Standards Will Weaken Prospects

Key Takeaways

• Elevated macroeconomic risks and changing consumer preferences threaten demand for recreational vehicles and shrink BRP's addressable market.
  
• Compliance pressures, slow electrification, and aggressive new competition risk margin compression and long-term erosion of market share.
  
• Innovation in new products, market diversification, and operational efficiency are strengthening BRP's position, supporting revenue growth, profitability, and resilience against economic fluctuations.

Catalysts

Designs, develops, manufactures, and sells powersports vehicles and marine products in the Mexico, Canada, Austria, the United States, Finland, Australia, and Germany.

• BRP faces structurally high exposure to macroeconomic headwinds and discretionary spending risk; persistently high interest rates, consumer affordability issues, and low income growth in core North American markets threaten to depress demand for big-ticket recreational vehicles, likely causing long-term revenue growth to stagnate or decline.
  
• The intensifying global push for electrification and stricter emissions regulations presents a major threat to BRP's combustion engine-heavy portfolio, leading to increased compliance costs, accelerating the need for costly research and development expenditure, and pressuring both net margins and future earnings as regulatory burdens grow faster than the company's EV ramp-up.
  
• Shifting consumer behaviors, particularly among Millennials and Gen Z, show reduced interest in powersports vehicle ownership in favor of digital experiences and shared mobility options; as these cohorts make up an increasing share of the market, BRP's core addressable customer base will erode, causing unit sales and associated aftermarket revenue streams to contract over time.
  
• Growing competitive threats from established automakers and tech-focused startups in electric and autonomous recreational vehicles raise the risk of market share loss and price wars; with BRP's slow transition to a fully electric portfolio and new entrants able to undercut on price or innovate faster, gross profit and EBITDA margins are likely to be compressed for years to come.
  
• Inventory management, dealer concentration, and lingering promotional activity resulting from industry destocking cycles are likely to keep working capital needs uncomfortably high, and increases in discounting will undercut earnings quality-even as international markets show pockets of growth, the overreliance on North America makes financial results volatile and prone to downward estimate revisions.

BRP Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on BRP compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming BRP's revenue will grow by 5.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.6% today to 6.0% in 3 years time.
• The bearish analysts expect earnings to reach CA$544.2 million (and earnings per share of CA$7.97) by about September 2028, up from CA$197.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.2x on those 2028 earnings, down from 32.9x today. This future PE is lower than the current PE for the CA Leisure industry at 25.7x.
• Analysts expect the number of shares outstanding to grow by 0.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.17%, as per the Simply Wall St company report.

BRP Future Earnings Per Share Growth

Risks

• Strong innovation momentum, including the launch of a new generation Can-Am Defender and industry-first electric models, positions BRP to gain market share, capture consumer demand in premium segments, and potentially increase both revenues and margins over the long term.
  
• Completion of network inventory rightsizing and leaner dealer inventory provides significant flexibility to rapidly meet retail demand upswings, helping to protect or even boost earnings, especially as macro conditions normalize.
  
• Expanding and highly engaged global dealer network, positive dealer sentiment, and strong reception to new products are likely to support recurring high-margin parts, accessory sales, and long-term revenue stability.
  
• Diversification into international and emerging markets, such as sustained double-digit growth in Latin America and recovery in Asia Pacific, creates new sources of top-line growth and mitigates regional economic risk, supporting consistent revenue expansion.
  
• Ongoing investments in operational efficiency, pricing optimization, and cost management-including successful mitigation of tariff impacts-have driven strong free cash flow and leave ample room for margin improvement and enhanced long-term profitability as the cycle turns.

Valuation

• The assumed bearish price target for BRP is CA$80.12, which represents two standard deviations below the consensus price target of CA$98.75. This valuation is based on what can be assumed as the expectations of BRP's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$114.0, and the most bearish reporting a price target of just CA$71.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$9.1 billion, earnings will come to CA$544.2 million, and it would be trading on a PE ratio of 13.2x, assuming you use a discount rate of 7.2%.
• Given the current share price of CA$89.17, the bearish analyst price target of CA$80.12 is 11.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.