Future AI Technology Investments Will Streamline Operations And Expand Market Reach

Key Takeaways

• Expansion in North America and strategic partnerships are expected to boost revenue growth and market share in the automotive sector.
  
• Investments in AI and technology drive operational efficiency, cost reduction, and improved net margins.
  
• Challenging market conditions and macroeconomic uncertainties may pressure revenue, earnings, and margins, with risks from lower GTV, automotive declines, and hurricane expenses.

Catalysts

An omnichannel marketplace, provides insights, services, and transaction solutions for buyers and sellers of commercial assets and vehicles worldwide.

• RB Global has expanded its North American sales organization by approximately 10% year-over-year, which is expected to enhance sales productivity and drive future revenue growth once the broader macro environment stabilizes or improves.
  
• The company is leveraging cutting-edge AI technology in the automotive sector, such as the IAA vehicle score and IAA Vehicle Value, to streamline operations and potentially reduce cycle times, which could lead to higher earnings through improved operational efficiency and service margins.
  
• RB Global is gaining market share in the international automotive salvage industry, notably through a significant upcoming multiyear contract with Suncorp Group in Australia. This partnership is anticipated to introduce up to 65,000 units annually, significantly boosting future revenue streams.
  
• The company has emphasized consistent operational efficiency and cost reductions, as evidenced by a decline in SG&A costs and strategies to expand service revenue take rates, contributing positively to net margins and adjusted EBITDA margins.
  
• Continued investment in technology and innovation strengthens RB Global's position in key markets, potentially yielding higher revenue per transaction through enhanced service offerings and ultimately improving net margins and overall earnings.

RB Global Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming RB Global's revenue will grow by 5.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.1% today to 14.3% in 3 years time.
• Analysts expect earnings to reach $693.9 million (and earnings per share of $3.93) by about December 2027, up from $340.5 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 31.3x on those 2027 earnings, down from 50.7x today. This future PE is greater than the current PE for the CA Commercial Services industry at 31.0x.
• Analysts expect the number of shares outstanding to decline by 1.46% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.96%, as per the Simply Wall St company report.

RB Global Future Earnings Per Share Growth

Risks

• The 7% decline in total Gross Transactional Value (GTV) due to challenging market conditions in the commercial construction and transportation sectors could lead to lower revenue and earnings growth.
  
• The decline in automotive GTV by 1%, driven by stable unit volume and a 1% drop in average price per vehicle sold, indicates potential pressure on top-line revenue.
  
• Ongoing macroeconomic uncertainties leading to a wait-and-see approach among partners, particularly in equipment disposition, could negatively impact revenue streams and net margins.
  
• Adjusted EBITDA declined due to lower levels of GTV and lower inventory returns, indicating potential risks to profit margins and overall earnings.
  
• The potential incremental operating expenses associated with recent hurricane events could pressure margins, despite potential top-line benefits from increased volumes.

Valuation

• The analysts have a consensus price target of $100.85 for RB Global 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 $116.0, and the most bearish reporting a price target of just $57.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $4.9 billion, earnings will come to $693.9 million, and it would be trading on a PE ratio of 31.3x, assuming you use a discount rate of 7.0%.
• Given the current share price of $93.62, the analyst's price target of $100.85 is 7.2% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.