Ritchie Bros. Auctioneers (RBA) shares have rewarded investors notably over the past decade, with the company's growth strategy expanding its presence in the auctions industry. While the business model appears interesting and the company's capital return track record is definitely impressive, RBA's valuation is likely too expensive to justify allocating capital to the stock now. Accordingly, I am neutral on the stock.
Ritchie Bros. Auctioneers is a world leader in auctions and disposition technologies for commercial assets, dealing $5.5 billion of used equipment and other assets last year.
Through its unreserved auctions, online marketplaces, listings, and private brokerage services, Ritchie Bros. sells a wide range of predominantly used commercial and industrial assets as well as government surplus. These assets make up the bulk of the equipment sold by Gross Transaction Value (GTV).
The company's customers (i.e., those selling the equipment) include end users like construction companies, equipment dealers, and original equipment manufacturers, among others.
An End-to-End Auctioning Ecosystem with Robust Expansion ProspectsRitchie Bros.'s investment case is especially interesting since there is plenty of economic value that can be unlocked through auctions. With the company specializing in the field and controlling the whole end-to-end value chain of these transactions, it can generate cash flow on multiple fronts.
Such value-added services include equipment financing, asset appraisals and examinations, logistical services, and other supportive services, such as equipment refurbishment. Thus, Ritchie Bros.'s growth potential is massive.
Note: RBA is a Canadian company that is listed both on the NYSE and TSX. All figures in this article are in U.S. Dollars.
RBA Has Been Sustaining Its Financial MomentumRitchie Bros.'s performance remained very strong during the pandemic. Despite the hurdles at the time, assets being sold rapidly during peak panic time boosted the company's GTV dollar value volumes. Its momentum endured strong during last year and in the company's most recent Q1 results, as persistent supply-chain disruptions have sustained a very tight environment for equipment.
Driven by a favorable trading environment for the company, revenues grew roughly 19% year-over-year to $393.9 million in the previous quarter. Specifically, total Service revenues and Inventory Sales revenues rose 19% each.
Service revenue growth was powered by the Fees segment growing 26% and Commissions revenue climbing 12%. The growth in fees was attributable to a GTV growth of 13%, as well as the elevated buyer fee rates enforced in 2021 and early 2022.
Regarding its profitability, adjusted net income and EPS surged 42% and 44% to $50.9 million and $0.46, respectively. This was the result of higher margins due to rather stable costs of services against higher revenues. Particularly, total operating expenses rose by just 15%. Accordingly, the adjusted operating income margin stretched from 17.4% to 22.6% compared to the prior-year period.
In my view, Ritchie Bros.'s upcoming Q2 results will reveal if the company's momentum is sustaining. Supply-chain bottlenecks have not eased in the slightest, as proven by containership rates which remain at record levels.
Further, the company's growth initiatives appear very promising. Its RBFS (Ritchie Bros. Financial Services) division, for instance, posted growth of 71% to $15.7 million in Q1, while its cumulative IMS (Inventory Management System) activations skyrocketed by 103% compared to the prior-year period.
These initiatives still account for a small chunk of total revenues, but they could accelerate the company's performance due to their explosive growth pace.
The Dividend is Attractive, but Not at this ValuationAs Ritchie Bros.'s end-to-end auctioning ecosystem has been continuously expanding, net income and dividend payouts have been expanding as well. In fact, Ritchie Bros. has been increasing its dividend per share annually without any exception since 2004, honoring an 18-year dividend growth track record.
Last year's 13.6% dividend hike was above the 10-year dividend per share growth CAGR of 8.3%. This may signal that management expects accelerated EPS growth moving forward.
In any case, based on consensus EPS estimates of $2.04 for Fiscal 2022, the payout ratio currently stands under 50%, which is a rather healthy level, in my view.
Despite the company's prolonged dividend growth track record, the dividend yield is only about 1.5%, as shares have gained 17.5% over the past year. That should be a rather unattractive yield for income-oriented and dividend-growth investors alike in a rising-rates environment, even if dividend hikes were to remain in the double digits.
Further, the consensus EPS estimate implies a P/E of about 34 at the stock's current price levels, which I find very pricy in the current environment, even if Ritchie Bros.'s current growth pace were to be sustained.
Wall Street's Take on RBA StockTurning to Wall Street, Ritchie Bros. has a Moderate Buy consensus rating based on three Buys, two Holds, and one Sell rating assigned in the past three months. At $65.60, the average Ritchie Bros. price target implies 5.2% downside potential.
Conclusion: Great Company, but Wait for a Share Price DropRitchie Bros. Auctioneers is a great company that exhibits a proven track record of robust shareholder value creation. While the company's momentum is likely to be sustained in its upcoming earnings results, I believe shares are very expensive at their current valuation.
With the yield having been compressed significantly lower lately, dividend returns could hardly offset the risks of a possible valuation multiple compression as well. Thus, it's likely better to avoid the stock at its current levels.
In this piece, we used TipRanks' Comparison Tool to evaluate three asset management stocks with yields at or above 3% that Wall Street is bullish on. As all of these stocks have upside potential, they're worth considering.
Many dividend stocks sporting the highest yields they've had in recent memory, thanks in part to recent weakness. When it comes to fallen high-yielders, it's hard to pass up on the value to be had in the financial space. The big banks have been a significant drag, as have asset managers, many of which boast yields well above the 3% level.
Though recession fears could mount in the second half, adding even more pressure to the fragile financial stocks, value seekers may wish to consider giving the sector a second look, as today's low prices may vanish in a few months' time.
1. Blackrock (BLK)Blackrock is the world's largest (and possibly best-known) asset manager. The stock plunged just north of 40% from peak to trough recently. With a modest 16.4 times trailing earnings multiple and a juicy 3.1% dividend yield, shares of the $95.6 billion behemoth seem worthy of a second look amid the financial wreckage.
Undoubtedly, the bear market in stocks and bonds has weighed heavily on assets under management, causing the firm to miss the mark on earnings for its second quarter. For Q2, per-share earnings came in at $7.36, coming up short of the $7.87 consensus estimate. Revenue also came in relatively light, at $4.53 billion, missing estimates by about $8 million.
Though the market waters have been choppy, ETFs and indexed products held their own rather well. Surprisingly, BlackRock still sees positive flows amid the market turmoil.
As the market heals from an unforgiving first half, I'd look for BlackRock to make up for lost time. The boom in passive investing is unlikely to fade due to this rough patch, and it should power BLK stock higher over time.
Wall Street is bullish, with the average BlackRock price target of $700.56 implying 11.1% upside potential.
2. Blackstone (BX)Blackstone is another asset manager with a cheaper multiple (13.2 times trailing earnings) and a swollen dividend yield of 4.5%. The firm specializes in alternative assets (think real estate, private equity, and hedge funds). It's been in the game for a long time and is unlikely to be derailed by the current market downturn.
Blackstone beat earnings for the first quarter, with EPS of $1.49, above the $1.42 consensus estimate. Revenue also beat expectations, coming in at $4.15 billion, $697 million higher than analysts predicted. AUMs climbed to $940.8 billion, an impressive 38% year-over-year growth.
Despite headwinds, Blackstone continues to see its fee-based earnings surge. Looking longer term, alternative asset investment demand is likely to remain robust. Real assets that provide a lower correlation to equity markets are still sought after, and I suspect they will continue to be well after this period of market volatility ends.
With strong managers and a long, impressive track record, it's hard not to be tempted by the stock's 34% haircut. Wall Street remains bullish, with the average Blackstone price target of $125.71 implying 30.4% upside potential.
3. Brookfield Infrastructure Partners (BIP)Brookfield Infrastructure Partners is a Canadian investment manager focused on infrastructure investments. The firm owns vital assets that tend to fare well during periods of economic weakness. Think rail infrastructure, electric transmission lines, toll roads, and pipelines.
Like BlackRock and Blackstone, Brookfield is a very respected name within the asset management community. Management has a knack for making smart deals and tends to be aggressive whenever it sees an opportunity.
The company has made many acquisitions over the years across a wide range of nations. The company is well-diversified and is well-positioned to bounce back from the recent barrage of selling.
Shares of BIP trade at 33.7 times trailing earnings, with a 3.7% dividend yield. With a 0.79 beta, the stock is slightly less volatile than the broader markets under normal circumstances.
Today, the stock is down just shy of 15% from its peak. With such slowdown-resilient, cash-flow-generative assets in the Brookfield portfolio, it's tough to pass up on the latest slide in shares. They're well-worth a premium, with recession odds as high as they are.
Turning to Wall Street, analysts remain incredibly bullish, with the average Brookfield Infrastructure Partners price target of $47.54 implying 22.1% upside potential.
Conclusion: Analysts are Most Bullish on Blackstone StockAsset managers seem oversold at this juncture. Of the three names mentioned in this piece, analysts expect the most upside from Blackstone over the coming year. For those looking to play defense ahead of a slowdown, Brookfield Infrastructure Partners seems like a solid bet.
Despite the rear-view damage and considerable negative momentum, many Wall Street analysts remain upbeat on beaten-down payment plays. In this piece, I'll use TipRanks' Comparison Tool to look at three contrarian payment plays that the market has been too quick to give up on.
Payment stocks, especially those leveraging financial technologies, have been the canary in the coal mine over the past year, enduring considerable selling pressure well before the broader markets headed into a correction and, eventually, a bear market.
Still, it's hard not to want to do some buying after the pummeling they've taken this year. It's entirely possible that more than just a "mild" recession is baked into shares at this juncture. Though coming quarters will be nail-biters, I think there's real value to be had over the long run.
1. Block (SQ)Block, formerly known as Square, used to be one of the most attractive fintech stocks in this market. The hype and euphoria got slightly out of hand in late 2020 and early 2021. Shares peaked in February 2021 before enduring a bumpy road and eventually crashing hard into the latter half of 2021. The first half of 2022 has just been salt in the wounds of Jack Dorsey's empire.
The firm behind Cash App and Square Point-of-Sale has been busy working on other initiatives behind the scenes. With Jack Dorsey giving the firm his full attention, there are many reasons to give SQ the benefit of the doubt, even as it moves through one of the roughest macro environments in recent memory.
RBC analysts recently noted that Block's second-quarter results will see the firm "walking on a fine line" as inflation's impact begins to weigh on spending habits. Other analysts have also been busy lowering their price targets in response to the brutal 75% crash in the stock.
It's not just a questionable consumer that's a cause for concern for Block; the firm faces considerable disruption as rivals look to take a bigger bite out of the payments space. It seems everybody wants to get into payments these days. If there are economic profits to be had, you can be sure it'll get the attention of the disruptive big-tech heavyweights.
With a robust Cash App ecosystem and a focused Jack Dorsey giving the firm his undivided attention, I'd not bet against Block stock, even as the fintech scene gets more crowded with time.
The stock trades at 2.5 times sales, which heavily discounts Dorsey's capabilities. I think the stock is severely oversold. Analysts agree with a "Strong Buy" rating. The average Block price target of $123.67 implies 72.2% upside potential from current levels.
2. PayPal (PYPL)PayPal is another fintech company that's fallen hard amid the "fintech bubble" burst. Like Square, PayPal has a robust peer-to-peer service (Venmo) that may have stickier users than many expect. With big-tech darlings looking to sink their funds into their own digital payments services, PayPal needs to pivot in a way it's never done before.
In prior pieces, I noted that merging with a social-media company would make a lot of sense to capitalize on the nascent social-commerce trend. Even if investors shoot down any merger attempts or acquisitions, I think the PayPal of tomorrow will look quite different as management looks to respond to rising competitive threats.
PayPal isn't just a sitting duck as new entrants into payments arise. The company has been making smart moves, including the acquisition of digital-coupon firm Honey, that could make the PayPal ecosystem stickier with time (like honey).
Honey isn't just a nice-to-have for PayPal. It's an extension that can help save digital shoppers a considerable sum of money. As the extension is integrated into PayPal's "super app," I expect the company will make it hard for its users to jump ship to a rival payments platform.
Add cryptocurrency wallets, value-adding perks, and other innovations into the equation, and PayPal seems like a firm that's more than capable of expanding its reach into new verticals.
At 3.6 times sales, PayPal stock is priced as though it's out of answers for competitive threats and coming e-commerce spending headwinds. Though hiring could slow significantly, I wouldn't count the juggernaut out of the game after a 74% plunge.
Wall Street is incredibly bullish, giving it a "Strong Buy" rating. The average PayPal price target of $114.39 implies 41.1% upside potential.
3. Visa (V)Visa is a credit card company that's pretty much gone nowhere for two-and-a-half years. Shares are down a mere 15% from all-time highs, far less than your average fintech stock. Amid the rocky, albeit relatively-muted correction, the stock has seen its valuation multiple contract considerably.
At writing, the stock trades at 33.1 times earnings and 16.5 times sales. On a price-to-sales basis, the stock is still uncomfortably expensive, especially in an environment that could see consumer spending grind to a halt.
Management decreased its sales guidance for Fiscal Year 2022 by a couple of percentage points. The suspension of operations in Russia and other macro headwinds are to blame. With a lowered bar and solid market leadership, Visa is a stock that may get its legs back in as soon as a few quarters, even if consumers can't dodge and weave through the coming economic pressures.
Turning to Wall Street, analysts are bullish, with a "Strong Buy" rating and the average Visa price target of $257.71 implying 20.6% upside.
Conclusion: Analysts are Most Optimistic About Block StockWall Street is staying bullish on the fallen payments plays. Block, PayPal, and Visa are all "Strong Buys." Of the three names, analysts expect the most from Block stock, which is currently expected to double over the year ahead.