NFI: Transit Demand Tailwinds Will Support Future Recovery In Zero Emission Deliveries

NFI Group's analyst price target has been trimmed slightly to about C$20.40 from C$20.76, as analysts modestly adjust fair value assumptions while maintaining a generally constructive outlook on the company.

Analyst Commentary

Recent Street research reflects modestly reduced price targets for NFI Group, clustering in the C$20 to C$22 range, while ratings remain skewed toward Outperform. This indicates confidence in the company’s medium term execution and growth prospects despite near term valuation recalibration.

Bullish Takeaways

Bullish analysts continue to assign Outperform ratings even as they trim targets. This suggests the recent pullback is seen more as a valuation reset than a structural change to the growth story.
The concentration of targets around C$20 to C$22 implies a relatively tight consensus on fair value. This hints at improved visibility into backlog conversion, margin recovery, and cash flow generation.
Supportive ratings indicate expectations that NFI can execute on its electrification strategy and benefit from public transit demand tailwinds, which could justify multiple expansion if operational milestones are met.
Maintained positive stances suggest that short term earnings volatility is viewed as manageable within the context of longer term secular growth in zero emission buses and fleet renewal cycles.

Bearish Takeaways

The downward revision in price targets signals that analysts are tempering near term growth and margin assumptions, reflecting execution risk around scaling production and controlling costs.
Lower targets highlight sensitivity to macro factors such as municipal budget constraints and potential delays in government funding, which could slow order intake or delivery timing.
Some bearish analysts appear cautious on the pace of balance sheet strengthening, with leverage and working capital needs potentially capping upside to valuation in the short run.
The reduced target range narrows the implied upside from current levels and suggests that meaningful share price appreciation may depend on clear evidence of sustained profitability and free cash flow inflection.

What's in the News

Lowered 2025 revenue guidance to a range of $3.5 billion to $3.7 billion from the previous $3.8 billion to $4.2 billion, reflecting year to date performance, expected fourth quarter deliveries, and a shift in sales mix, with zero emission bus deliveries now expected toward the lower end of prior expectations (company guidance).
Highlighted that the timing of customer acceptances and lingering supply related disruptions are pressuring 2025 zero emission bus volumes, contributing to the tighter, reduced guidance range (company guidance).
Formed a 50/50 joint venture with GILLIG LLC to acquire the assets of American Seating Inc., securing a key transit seating supplier and aiming to stabilize and improve a critical part of the bus industry supply chain (company announcement).
Confirmed that the new joint venture, GR Seating, LLC, will retain American Seating's facilities, brand, intellectual property, and union partnerships in Grand Rapids, Michigan, and will invest in equipment and facilities to improve throughput and delivery timelines (company announcement).

Valuation Changes

Consensus Analyst Price Target, represented by fair value, has fallen slightly to approximately CA$20.42 from CA$20.76, reflecting a modest recalibration of upside potential.
Discount Rate has edged down marginally to about 9.88 percent from 9.89 percent, signaling a negligible change in perceived risk profile.
Revenue Growth assumptions are effectively unchanged at roughly 15.61 percent, indicating stable expectations for top line expansion.
Net Profit Margin estimates remain essentially flat at around 6.65 percent, suggesting no material shift in long term profitability assumptions.
Future P/E is essentially unchanged at 6.60x, indicating stability in the multiple applied to forward earnings.

Market tailwinds from electrification mandates and government funding strongly support recurring order growth, expanding NFI's addressable market and long-term earnings stability.
Operational improvements, supply chain normalization, and expansion of aftermarket services are expected to drive higher manufacturing efficiency and more resilient margins.
Eroding market share, shifting product demand, high debt, tariff uncertainties, and rising competition challenge NFI's profitability, growth outlook, and ability to lead in zero-emission transit.

Catalysts

About NFI Group

Manufactures and sells buses in North America, the United Kingdom, rest of Europe, and the Asia Pacific.What are the underlying business or industry changes driving this perspective?

Record multiyear backlog (over $13.5 billion, with high option conversion rates and strong book-to-bill ratios) provides significant forward visibility and positions NFI to benefit from the ongoing replacement cycle of aging bus fleets in North America and Europe-directly supporting future revenue growth.
Robust demand environment fueled by sustained government funding for fleet electrification, including $20.6 billion in recent U.S. FTA funding (with dedicated low/no-emission bus programs), underpins multi-year transit investments and continued order flow, signaling long-term support for both revenue and earnings stability.
Industry-wide acceleration towards lower-emissions vehicles, supported by increasing decarbonization policies and stricter emissions regulations globally, expands NFI's addressable market for zero-emission buses and their expanded electric product lineup-supporting higher future market share and revenue.
Recent operational improvements, including supply chain normalization (reduction to only one high-risk supplier and increased parts availability), vertical integration initiatives, and U.K. facility consolidation efforts, are expected to enhance manufacturing efficiency and net margin expansion over the next several years.
Continued growth of higher-margin aftermarket services, buttressed by a growing installed base and recurring maintenance/parts contracts, is expected to provide greater earnings resilience and smooth out cyclicality in core manufacturing revenue, supporting more stable long-term margin performance.

NFI Group Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming NFI Group's revenue will grow by 21.5% annually over the next 3 years.
Analysts assume that profit margins will increase from -5.0% today to 2.0% in 3 years time.
Analysts expect earnings to reach $118.8 million (and earnings per share of $2.24) by about September 2028, up from $-163.7 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 22.1x on those 2028 earnings, up from -9.9x today. This future PE is lower than the current PE for the CA Machinery industry at 26.9x.
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 8.85%, as per the Simply Wall St company report.

NFI Group Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The U.K. market, historically a stronghold for NFI (via Alexander Dennis), is under sustained pressure due to procurements favoring lower-cost, non-local manufacturers (especially from China), leading to downward revisions in long-term financial projections, significant non-cash impairments, and ongoing restructuring. This erodes revenue contributions, profitability, and adds execution risk to cost-reduction efforts that may not fully restore competitiveness or lost volumes.
Despite a record backlog, a growing portion of new orders is for internal combustion engine (ICE) buses rather than zero-emission vehicles, reflecting shifting customer demand and a changing U.S. administration stance. This could dampen NFI's positioning as a zero-emission leader, slow anticipated secular tailwinds, and threaten future revenue growth and margin expansion associated with higher-value EV models.
NFI remains highly leveraged (4.9x total leverage including convertibles at Q2 2025), despite recent refinancing. High debt levels constrain financial flexibility, increase vulnerability to interest expense volatility, and could restrict the company's ability to absorb adverse shocks or invest in R&D and growth initiatives-potentially weighing on future net earnings and margin recovery.
Tariff regimes and evolving trade tensions, particularly regarding U.S. and Canadian raw materials, components, and finished goods, introduce ongoing uncertainty in input costs. While NFI aims to pass through these costs to customers, delays in reimbursement and potential inability to recover all tariff-related expenses could result in margin compression and negative cash flow timing, directly impacting earnings.
The long-term addressable market for traditional heavy-duty buses could contract as alternative transit solutions (micro-mobility, on-demand shuttles, autonomous vehicles) gain traction and as aging fleet replacement cycles subside. Persistent labor cost inflation and increased global competition from both established and new EV-specialist entrants threaten NFI's market share and will likely pressure long-term margins and revenue growth.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of CA$23.637 for NFI Group 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$26.98, and the most bearish reporting a price target of just CA$22.96.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.8 billion, earnings will come to $118.8 million, and it would be trading on a PE ratio of 22.1x, assuming you use a discount rate of 8.8%.
Given the current share price of CA$18.84, the analyst price target of CA$23.64 is 20.3% 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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Record Backlog And Industry Partnerships Will Drive Long-Term Market Expansion