Following a “solid” third quarter, Raymond James analyst Stephen Boland sees Element Fleet Management Corp. “setting up [the] next growth phase.”
After the bell on Monday, the Toronto-based company reported adjusted earnings per share of 34 cents, up 2 cents from the previous quarter and 5 cents year-over-year. It also topped both Mr. Boland’s 31-cent estimate and the consensus projection on the Street of 32 cents, driven by better-than-anticipated revenue (rising 14.8 per cent from the same period a year ago).
“The recovery in originations continued this quarter, with a moderate expansion from the strong volumes posted in 2Q23,” the analyst said. “Despite the recent strength in originations, backlog remains well above historic averages and is likely to remain elevated through most of 2024. EFN is also awaiting further detail on any possible OEM production impact from the recent UAW strike (although no information was provided at this stage).
“EFN announced a number of strategic initiatives this quarter. EFN is centralizing its U.S. and Canadian leasing operations and will run the division from a new office in Dublin, Ireland. The company expects this change will drive greater accountability across geographies for the company’s leasing business and drive a more consistent and superior client leasing experience. In addition, EFN is establishing a new strategic sourcing presence in Singapore, aimed at expanding clients’ access to new vehicles in Asia (with an EV focus) and enhancing the company’s global procurement capabilities through improved OEM relationships. From a financial standpoint, EFN expects these initiatives will drive $40-$60-million in incremental net revenue and $30-$50 million in adjusted operating income by 2028, with the projects expected to be cash flow positive by 2025. The company has appointed internal and external executives to lead each of these ventures.”
With a narrow reduction to his 2024 EPS projection, Mr. Boland cut his target for Element Fleet shares “moderately” by $1 to $26, keeping a “strong buy” rating. The average is $25.56.
“Given the recent turnaround in the company’s operations, along with the resilient and defensive nature of its business model, EFN remains our top pick heading into 2024,” he concluded.