YB new stock pitches (Mon, Dec 16)

North American Construction Group Ltd. (NOA) is a dirt moving services firm focused on hostile weather locations, offering potential for higher margins and pricing power. The company employs an acquisition/buyback model, utilizing increased cash flow from acquisitions and synergies to repay debt and repurchase stock. This strategy has led to high Return on Equity (RoE) and Return on Incremental Invested Capital (RoliC), which have increased over the past 5-10 years. The recent MacKellar acquisition is expected to further boost NOA's RoE. A 5-year DCF valuation assumes industry growth rates post-2025, steady operating margins, and a 5% market cap buyback once leverage targets are achieved in 2025. These projections result in upper teens EPS growth, an $85 per share value, and a 23% IRR. NOA is presented as an interesting public leveraged buyout play, with its unique focus on maximizing equipment utilization across projects in hostile weather locations contributing to its potential for higher returns.

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Valvoline Inc. (VVV) is recommended as a long with a September 2027 price target of $83.58, representing a 94% upside and 21% IRR. The investment thesis is based on three key factors: 1) Potential for significant unit growth from 1,800 to 3,500+ stores, capitalizing on a fragmented market and attractive unit economics with 20%+ unlevered IRRs; 2) Terminal value protection against EV adoption, with management already piloting EV-focused maintenance services; and 3) Strong cash flow generation and disciplined capital allocation, including share buybacks. The company benefits from secular tailwinds such as the DIY to DIFM shift, fleet and non-oil change revenue growth, and consistent high-single to low-double-digit comp growth. The base case assumes 10% unit growth, 8% SSS growth, 27% EBITDA margins, and 25% EPS growth. Key risks include competition, potential decreased oil change frequency, and EV adoption. The stock is valued at 22x forward P/E on FY28 EPS of $3.98, with a risk/reward ratio of 3.0x.

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On Holding AG (ONON), a Swiss athletic footwear company, is growing 25-30% annually compared to Nike's -5-10% decline. With $2 billion revenue in 2023, On is projected to reach $4 billion by 2026, and increase EBITDA margins from 15% to 20%. The company is expanding into apparel and tennis, signing athletes like Ben Shelton and Iga Świątek, and sees growth opportunities in Europe and China. Currently trading at 15-16x EBITDA, On is expected to reach a 30-35x multiple, potentially valuing the company at $25 billion. The founders still own 30% of the business, which is seen as a positive sign. On's focus on enhancing athletic performance, particularly in marathon running, has allowed it to create a better sneaker and seize market share while Nike has been investing less. With On being only 10% the size of Nike, there's considerable room for growth in the large athletic footwear and apparel market.

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