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Bullboard - Stock Discussion Forum Element Fleet Management Corp T.EFN

Alternate Symbol(s):  ELEEF

Element Fleet Management Corp. is a Canada-based fleet solutions providers. It operates as a pure-play automotive fleet manager. The Company offers a full range of fleet services and solutions to corporations, governments and not for profits across North America, Australia, and New Zealand. Its services address every aspect of clients' fleet requirements, from vehicle acquisition, maintenance... see more

TSX:EFN - Post Discussion

View:
Post by retiredcf on Nov 06, 2023 9:14am

More RBC

Their upside scenario target is $36.00. GLTA

November 5, 2023

Element Fleet Management Corp. 
Why EFN is our #1 high-conviction best idea

Our view: We believe EFN’s shares are mispriced (13.5x P/E and 9.5% FCF yield (NTM)), despite growing EPS and FCF/share at +26% and +28%, respectively, in the past year and we think can grow EPS at a +16% CAGR over the next 5 years. We think the recent share price decline presents a very attractive buying opportunity for a stock we believe should be a core holding in any portfolio given we think the stock can do well if markets rally, but also has impressive defensive attributes and should be a relative (potentially) absolute beneficiary in a recession scenario. EFN also benefits from high inflation and shouldn’t be materially impacted by higher interest rates. We think EFN has by far the best risk-reward within our coverage universe, showing a blend of very positive fundamentals; strong defensive attributes; potential catalysts; and attractive valuation. Maintaining Outperform rating, $30 target for our #1 high-conviction best idea.

Key points:

2024 guidance should be announced when Q3/23 results are released tomorrow (Monday). We forecast 2024 Basic Operating EPS of $1.52, above consensus of $1.47 (range of $1.40 to $1.54). Pages 2-3 run through our thoughts on 2024 guidance, but investors should understand we think EFN has been conservative providing guidance as 2022 EPS was +24% above EFN’s guidance; 2023 EPS is tracking well ahead of EFN’s guidance; Q1/20 annualized EPS was already at the high end of EFN’s guidance when the pandemic hit; 2021 had no guidance), so we think investors should not necessarily overreact if 2024 guidance is below consensus, and given our bullish long-term view on EFN, view any share price weakness as a very attractive buying opportunity. Also, F/X could be a tailwind to consensus given recent strength in the US$ (every $0.01 change in F/X for all currencies is ~$0.05 to EPS).

Who wants much higher dividends and share buybacks? By the end of 2024, we expect the remaining preferred shares/convertible debenture to be gone. With EFN generating significant FCF with low capex and no M&A appetite, we think: (1) EFN could increase its dividend payout ratio from 25%-35% to perhaps 35%-50%; and (2) use remaining FCF to buy back stock (we estimate EFN could repurchase ~5% of shares outstanding per year). We think this could be a significant catalyst for the stock.

We estimate an investor could realize a 5-year IRR of +26% purchasing EFN’s shares today, based on our forecast and assuming EFN trades at an 18x P/E multiple (our target multiple) in 2028. Each 1x change in the 2028 P/E multiple = ~125bps to the 5-year IRR.

Comment by Niceneasydoesit on Nov 07, 2023 8:00am
Obviously bulls. Guidance was below what is stated here. Stock being mispriced  not new. Im a suffering long since the last qtr. I think the divi raise is not impactful
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