Rare top pick at BNN TOP PICKS
ROCKY MOUNTAIN EQUIPMENT (RME.TO)
Rocky Mountain runs an independent dealer network in Canada for new and used agricultural and industrial equipment. While there was a surge in equipment purchases during the years 2012-2014, the following years brought inventory builds and a general lack of buying interest. We believe we are close to the end of the inventory build cycle and expect to see volume and pricing improvements in the coming years. The last several quarters have seen sequentially-improving year-over-year earnings growth at Rocky Mountain, and the pattern of positive earnings surprises suggests the analyst community is behind the curve on the industry. In addition, we expect Rocky Mountain to benefit from strong operating leverage when activity picks up, which will further drive the company’s per share growth in earnings. At the current valuation of 8.5x forward earnings and 5.5x forward EBITDA, we like the positon for an entry here and see attractive risk-reward. We haven’t modeled any acquisitions into our analysis but see the likelihood of this type of catalyst as high given owner demographics and an activity rebound that should spur an uptick in consolidation.