NFI Group's Strategic Resilience: A Pathway to Shareholder Value in the Evolving Transit Market

The transit manufacturing sector is undergoing a transformative phase, driven by regulatory pressures, environmental mandates, and a surge in public infrastructure investments. NFI Group (NFI), a global leader in the design and manufacturing of buses and coaches, has positioned itself at the forefront of this evolution. With a robust order backlog, supply chain revitalization, and strategic refinancing, NFI is not only navigating near-term challenges but unlocking long-term value for shareholders.

A Fortress of Backlog: Future Revenue Visibility

NFI's total backlog of $13.5 billion in Q2 2025—comprising 16,198 equivalent units (EUs), including 35.3% zero-emission buses (ZEBs)—represents a 14.4% year-over-year increase in dollar terms. This backlog is not merely a volume play; it reflects a strategic pivot toward high-margin, sustainable propulsion technologies. The average price per EU has risen 3.2% to $840,000, driven by improved pricing on new orders and a stronger product mix.

The backlog's composition is equally compelling. With 6,082 firm EUs and 10,116 option EUs, NFI's pipeline ensures a steady revenue stream over the next 18–24 months. Notably, ZEBs account for 35.3% of the backlog, aligning the company with the U.S. Federal Transit Administration's $20.6 billion 2025 funding apportionment for zero-emission programs. This positions NFI to capitalize on the IIJA's $9.1 billion Clean Bus Rebate Program, which is accelerating demand for electric buses.

The book-to-bill ratio of 119.9% (LTM) underscores NFI's ability to secure new orders despite macroeconomic headwinds. With 5,855 EUs in active bids, the company's 2025 guidance of $3.8–$4.2 billion in revenue appears well-supported.

Supply Chain Reengineering: Margin Expansion and Operational Efficiency

NFI's supply chain overhauls in 2025 have been a catalyst for margin expansion. The onboarding of a new North American seat supplier ahead of schedule reduced production bottlenecks, cutting the number of delayed units from 74 to 56 in Q2. This supplier, previously a high-risk bottleneck, now operates with improved reliability, while the broader supplier base has seen a 90% reduction in high- and moderate-risk partners.

The results are evident in the company's financials. Gross margins expanded to 13.4% in Q2 2025, up from 11.9% in Q2 2024. The manufacturing segment's Adjusted EBITDA surged by $109 million year-over-year, driven by higher delivery volumes and pricing discipline. These improvements are not transient; they reflect a structural shift in supplier management and production efficiency.

Strategic Refinancing: Strengthening the Balance Sheet

NFI's 2025 refinancing package—a $700 million revolving credit facility and a $600 million private offering of secured notes—has bolstered liquidity by $198.8 million. This move not only reduces refinancing risks but also provides flexibility to invest in growth initiatives, such as expanding its ZEB production capacity.

The refinancing also addresses long-term debt maturities, with the new notes maturing in 2030. This extends the company's debt horizon, reducing near-term liquidity pressures. With total liquidity now at $326.7 million, NFI is well-positioned to fund operations, R&D, and strategic acquisitions without relying on volatile capital markets.

Valuation Justification: A Case for an Aggressive Price Target

NFI's stock has traded within a 52-week range of $7.09 to $14.35, currently hovering near $12.99. Analysts have set price targets ranging from $16.03 to $19.63, with an average of $17.82—a 37% upside from current levels. This premium is justified by the company's operational improvements and revenue visibility.

Key metrics support a re-rating:
- ROIC: NFI's Return on Invested Capital increased to 7.9% in Q2 2025, up from 3.5% in 2024.
- EBITDA Growth: Adjusted EBITDA is projected to grow from $254.6 million (first half 2025) to $320–$360 million by year-end.
- Backlog Value: At a 13.4% gross margin, the $13.5 billion backlog implies ~$1.8 billion in potential gross profit, or ~$2.1 billion in Adjusted EBITDA if margins stabilize at current levels.

Risks and Mitigants

While NFI's trajectory is promising, risks persist. Tariffs on steel and aluminum could pressure margins, particularly in the private coach segment. However, the company is negotiating surcharges with customers and leveraging its transactional sales model to absorb costs. Additionally, the UK's competitive landscape remains challenging, but NFI's cost-reduction actions and propulsion-agnostic strategy provide flexibility.

Conclusion: A Compelling Investment Opportunity

NFI Group's strategic focus on backlog conversion, supply chain resilience, and capital structure optimization has positioned it as a standout in the transit manufacturing sector. With a $13.5 billion backlog, 35% ZEB exposure, and a path to $360 million in Adjusted EBITDA, the company is well on its way to achieving its 2025 guidance.

For investors seeking exposure to the clean energy transition and infrastructure growth, NFI offers a compelling case. The stock's current valuation, coupled with analyst price targets and operational momentum, suggests a potential upgrade to $19.63—a 49% upside. While risks remain, NFI's disciplined execution and market-leading position in zero-emission transit make it a high-conviction holding for the long term.