Expecting a quarterly beat, Scotia’s Michael Doumet raised his RB Global Inc. target to US$76 from US$74 with a “sector outperform” rating. The average is $74.06.
“Since the acquisition of IAA, investors have been treated to several upward revisions to Street estimates (2023E EBITDA/EPS up 14 per cent/17 per cent; 2024E EBITDA/EPS up 5 per cent/5 per cent),” said Mr. Doumet. " However, much of the better-than-expected operating performance in 2023 was offset by two negatives: the (i) management changeover and (ii) customer loss at IAA. At this point, we believe investors have gotten ‘comfortable’ with the former, but are waiting for evidence to better assess the IAA turnaround. This ‘wait and see’ approach has led to further discounting in RBA shares — which, we think, amplifies the potential upside if (or more likely, once) the turnaround happens. In the meantime, we think legacy RBA is well set up to (continue to) exceed expectations.
“There’s often no better time to own a stock than when it trades at a low multiple on low expectations — and RBA’s trading multiple is near a 10-year low. In our view, IAA does not necessarily need to win back market share for RBA shares to work (FCFPS is on pace to accelerate materially through 2025E); that said, we believe IAA’s improved operations, management’s track record, and the desire (by carriers) for a more balanced duopoly remain supportive of share gains in the 2H24/2025.”