REV Group Inc.: Upside In 2021 As Stimulus Spending Boosts Growth

Summary

• REV Group reported its latest quarterly result highlighted by firming margins and an improving outlook.
• Strong trends in fire & emergency vehicles along with record demand for RVs are balancing a weak commercial segment, still pressured from the pandemic.
• The company is well-positioned to benefit from continued fiscal stimulus supporting state and local governments which can drive a recovery in key product categories.

REV Group Inc. (NYSE:REVG) is a manufacturer and distributor of specialty vehicles recognized for its leading platform in emergency public services like fire trucks and ambulances. The company also produces school and transit buses, street-sweepers, along with a portfolio of recreational vehicle "RV" brands. While the company faced disruptions in 2020 due to the COVID-19 pandemic, the latest quarterly results were highlighted by improving demand and firming margins. Shares have rallied in recent months to trade at a 1-year high and we see more upside through 2021 supported by operational momentum. Rev Group is uniquely positioned to benefit from future fiscal stimulus efforts aimed at funding state and local agencies that represent an important segment of end-users. This is an overall quality stock with a positive long-term outlook.

(Seeking Alpha)

REVG Earnings Recap

REV Group reported its fiscal 2020 Q4 earnings on January 7th with non-GAAP EPS of $0.19, in-line with estimates. A GAAP EPS loss of -$0.16 reflected some impairment and restructuring charges related to cost cuts and strategic changes implemented over the past year. While net sales of $616 million declined by 5.6% year-over-year pressured by a particularly weak commercial segment, firm-wide adjusted EBITDA of $28 million was up 45% year over year driven by higher margins.

(source: Company IR)

The story here was otherwise strong results from the fire and emergency "F&E" segment where revenues climbed 23% y/y to $330 million and now represent over 50% of the total business. The company acquired 'Spartan Emergency Response' in early 2020, solidifying its market leadership in the segment. Notably, the company has a backlog of $966 million in this segment supporting a strong growth outlook. Ambulances have been in high demand, in part based on the pandemic, adding to operating income in the segment. Management highlighted its manufacturing facility in Florida during the

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in REVG over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.