REV Group, Inc. (REVG) is set to unveil its third-quarter earnings result on September 13, 2023. The automaker registered top-line growth in the last reported quarter, driven by increased net sales and price realization across all divisions. Can it maintain the trend?
This article evaluates why REVG is an attractive investment option ahead of its third-quarter earnings release.
Analysts expect the company’s third-quarter earnings to decline 4.2% year-over-year to $0.23. However, the consensus revenue estimate of $627.1 million indicates a 5.4% improvement over the year-ago quarter.
For the quarter ended April 30, 2023, REVG’s Fire & Emergency, Commercial, and Recreation segments observed 15.6%, 56.4%, and 6.5% year-over-year surge in revenues to $283.10 million, $141.90 million, and $256.60 million, respectively, which improved REVG’s operational consistency with increased starts and completions, subsequently amplifying the overall sales of the firm.
Moreover, the company raised its full-year outlook. It projects net sales to fall between $2.45 billion and $2.55 billion, the adjusted EBITDA between $120 million and $135 million, and adjusted net income between $48 million and $62 million.
The stock has garnered significant attention recently, evident from the changes made to the holdings of REVG stock by Institutional investors. Institutions hold roughly 95.5% of REVG shares. Of the 137 institutional holders, 68 have increased their positions in the stock. Moreover, 22 institutions have taken new positions in the stock with 1,258,167 shares, reflecting signs of bullishness.
As a result of such increased attention, REVG’s shares have gained 6.9% over the past six months to close its last trading session at $13.02. Moreover, the stock is trading above its 100-day and 200-day moving averages of $12.29 and $12.45, respectively, indicating an uptrend.
Here are the factors that could affect REVG’s performance in the near term:
Robust Financials
During the fiscal second quarter that ended April 30, 2023, REVG’s net sales increased 18.2% year-over-year to $681.20 million. During the same quarter, the company’s adjusted EBITDA and adjusted net income came in at $41.90 million and $20.80 million, up 76.1% and 96.2% year-over-year, respectively. Also, its adjusted net income per common share grew 105.9% from the prior-year quarter to $0.35.
REVG’s total current assets stood at $924.40 million as of April 30, 2023, compared to $888.40 million as of October 31, 2022.
Reasonable Valuation
In terms of forward EV/Sales, REVG is trading at 0.41x, 76% lower than the industry average of 1.70x. Its forward EV/EBITDA multiple of 8.18 is 26.2% lower than the industry average of 11.08.
Favorable Analyst Estimates
For the fiscal year ending October 2023, REVG’s revenue and EPS are expected to increase 8.4% and 20% year-over-year to $2.53 billion and $0.96, respectively. For the fiscal year ending October 2024, Street expects its revenue and EPS to increase 1.1% and 33.9% year-over-year to $2.56 billion and $1.29, respectively.
The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
POWR Ratings Show Promise
REVG’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. REVG has a B grade for Value consistent with the lower valuation relative to its peers. The stock also has an A grade for Growth, justified by its robust financials.
Also, REVG’s B grade for Sentiment is evident from the favorable analyst estimates.
Within the B-rated Auto & Vehicle Manufacturers industry, REVG is ranked #5 out of the 54 stocks.
Beyond what we’ve stated above, we have also rated the stock for Momentum, Stability, and Quality. Get all ratings of REVG here.
Bottom Line
The automotive industry is anticipated to showcase persistent resilience, driven by a rising inclination towards EVs and robust governmental backing. Factors such as the escalating demand for ambulances and increasing consumer interest in recreational vehicle (RV) travel and camping drive wholesale shipments and are likely to serve as a boon for specialty vehicle manufacturers.
The Specialty Vehicle Market is expected to reach $120.49 billion by 2028, growing at a CAGR of 3.2%. Given the favorable industry backdrop, REVG is poised to benefit.
REVG’s noteworthy profitability, appealing valuation, and promising top-and-bottom-line estimates make it a solid portfolio addition.
Further fortifying this standpoint is the fact that, on June 1, REVG's board of directors sanctioned the repurchase of up to $175 million of the company’s outstanding common stock.
Also, the company’s shareholder return ability is justified by its quarterly dividend payment of $0.05 per share to the shareholders on July 14, 2023. Its annualized dividend rate of $0.20 per share yields 1.53% on prevailing prices. REVG’s four-year average dividend yield is 1.53%.
How Does REV Group, Inc. (REVG) Stack Up Against Its Peers?
While REVG has an overall grade of A, equating to a Strong Buy rating, you may also check out these other stocks within the Auto & Vehicle Manufacturers industry, Honda Motor Co. Ltd. ADR (HMC), Isuzu Motors Limited (ISUZY), and Stellantis N.V. (STLA), with an A (Strong Buy) rating. For exploring more A and B-rated hardware stocks, click here.
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REVG shares were trading at $13.11 per share on Tuesday morning, up $0.09 (+0.69%). Year-to-date, REVG has gained 4.73%, versus a 17.68% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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