Softening Global Demand And Rising Costs Will Hinder Outlook

Key Takeaways

• Weakening demand in key regions and among younger, entry-level buyers signals risk to future growth and possible generational shifts away from motorized powersports.
  
• Overreliance on combustion engines and pressure from regulations, inflation, and increased competition threaten margins, asset values, and earnings stability.
  
• Strong execution, premium product resilience, innovation pipeline, tariff management, and prudent capital allocation position BRP for sustained growth and margin improvement despite economic headwinds.

Catalysts

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

• Despite efforts to manage inventory levels and align wholesale with retail, BRP faces continued softening demand across key international markets like EMEA and Asia Pacific, with retail sales down 22% and 13% respectively, indicating a risk of long-term demand erosion in regions that are crucial for future volume growth and revenue diversification.
  
• While demand remains stronger for high-end products, lower-income and entry-level consumers have shown steep declines in purchases, with the entry-level Ryker down 40% and Spark watercraft down 15%. This signals a potential generational shift away from motorized powersports among younger buyers, which could materially reduce unit sales and limit future revenue growth.
  
• BRP's heavy investment and reliance on internal combustion engine (ICE) products expose the company to increasingly strict global emissions regulations and the accelerating transition to electric vehicles, causing risk of asset writedowns, regulatory compliance costs, and stranded manufacturing assets that could result in margin compression and negative impacts on net earnings.
  
• Supply chain volatility and intensifying promotion from competitors, driven by excess inventory, create heightened pressure on margins and profitability. Sustained cost inflation in raw materials, currency headwinds, and the need for ongoing discounts to clear aged inventory have already caused a 500 basis point drop in gross margin and will likely challenge margin recovery into the medium term.
  
• Macroeconomic and regulatory uncertainty, specifically from volatile global tariffs and potential US policy changes such as the so-called big beautiful bill, combines with high interest rates and tepid consumer confidence to increase sales unpredictability. This complicates demand forecasting and significantly elevates the risk of earnings volatility, especially as BRP continues to depend on North American markets for the majority of its revenue.

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 3.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 2.4% today to 6.1% in 3 years time.
• The bearish analysts expect earnings to reach CA$521.4 million (and earnings per share of CA$7.45) by about August 2028, up from CA$181.4 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 8.6x on those 2028 earnings, down from 32.5x 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 remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.13%, as per the Simply Wall St company report.

BRP Future Earnings Per Share Growth

Risks

• BRP demonstrated strong execution in managing inventory and aligning wholesale with retail, leading to lower dealer credit utilization and a healthier network position, which supports higher future sales volumes and improved margins as the industry stabilizes.
  
• Despite macroeconomic headwinds, BRP continues to outperform in premium product categories, gain market share in current units, and sees strong consumer interest among high-income buyers, indicating resilience in core revenue streams and potential for net margin recovery.
  
• The company has a robust pipeline of new product launches, particularly for Can-Am and watercraft, combined with international segment growth, which is expected to drive double-digit top-line growth and higher normalized EBITDA and EPS in the second half of the year.
  
• Tariff impacts, although a risk, are currently manageable at less than one percent of revenue due to BRP's USMCA-compliant production base, proactive supplier strategies, and regular pricing adjustments, which help protect earnings and net margins relative to competitors.
  
• BRP's strong balance sheet, solid free cash flow, and disciplined approach to capital allocation provide the financial flexibility to invest in innovation and take advantage of a rebound in consumer demand, supporting long-term revenue and earnings growth.

Valuation

• The assumed bearish price target for BRP is CA$50.0, which represents the lowest price target estimate amongst analysts. 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$97.0, and the most bearish reporting a price target of just CA$50.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CA$8.5 billion, earnings will come to CA$521.4 million, and it would be trading on a PE ratio of 8.6x, assuming you use a discount rate of 7.1%.
  
• Given the current share price of CA$80.65, the bearish analyst price target of CA$50.0 is 61.3% 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.