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Baird: Curtin 2010 Forecast Too Conservative

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December 4, 2009 by   Leave a Comment

baird_new_logoEditor’s Note: The investment firm Robert W. Baird & Co. hosted an investor field trip to the National RV Trade Show in Louisville, Ky.,  this week. Here are excerpts from the company’s report contained in a current client newsletter:

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Low dealer inventory and strong OEM backlogs have insiders optimistic, supporting our robust (wholesale) recovery scenario. We remain bullish on wholesale fundamentals, but prefer a margin of safety until the magnitude of the retail recovery becomes clearer.

Summary

Light attendance. Attendance was light, by our estimation. Our sources indicate attendance was flat after falling 40% in 2008 as dealers conserve resources. Investor interest was up.

Don’t worry. Be happy. We sensed relief and contrived optimism at the show. The “bottom” we and others identified earlier this year – which is evident in low dealer inventories and robust OEM backlogs – has nearly everyone focused on a better 2010. We continue to believe the return to a “normal” inventory replenishment rate will drive a robust recovery in 2010 – but retail demand must recover if the recovery is to be sustainable.

The bank is boss. More than ever, bank decisions about consumer credit and wholesale lending control the fate of the RV industry. By enforcing more disciplined inventory management and demanding that consumers/dealers have more “skin in the game,” banks will influence industry growth and determine the winners and losers. Having been caught holding distressed collateral from weaker OEMs, banks want better partners. In an industry with few barriers to entry – access to capital provides an opportunity for well-managed businesses. Among the winners, one banker listed Thor Industries Inc., Forest River Inc., Tiffin Motor Homes Inc., Jayco Inc., Winnebago Industries Inc. and Heartland Recreational Vehicles LLC.

Conservative RVIA forecast.  Richard Curtin revised his 2010 shipment forecast – but remains overly conservative in our view, especially in motorhomes. He sees 2010 towable shipments up 30% (up from 29%) and motorhome shipments up 25% (down from 27%). For perspective, we expect motorhome shipments to be up 108% at Winnebago.

Outlook. We remain bullish on fundamentals as a robust wholesale recovery unfolds, but prefer a better margin of safety.

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