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Baird Lowers Estimates on Growing Volatility

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August 15, 2011 by   Leave a Comment

Editor’s Note: Robert W. Baird & Co. issued a client newsletter last week in response to market volatility. Excerpts from the Baird newsletter follow.

• Lowering estimates as wealth and confidence deteriorate. We are cutting our estimates to reflect the damage to wealth and confidence this week has wrought. The debt debate, economic slowdown, and potential for higher taxes on wealth likely will take a toll on the RV consumer. Fortunately, dealer inventory is in better shape than 2008-2009, limiting the impact this time. As investors shed risk, shares already appear to discount another recession, so we advise sellers to seek a better exit price.

• Confidence crisis: We are proactively trimming our RV estimates to reflect a more cautious near-term outlook for the confidence-driven industry. Recent volatility in the equity markets and instability in Washington have the potential to curtail the already anemic recovery. Facing an uncertain economy, consumers are less likely to buy and dealers are less likely to stock – leading to potentially fewer orders for Thor and Winnebago. While our early-summer checks still showed growth at retail, investors are less confident about the next 6-12 months.

• Thor: We met with Thor in Indiana during investor meetings last week. Investors remain concerned with the economy, margin pressure (discounting), management changes and market share trends. Management did not comment on future performance, but did strike a cautious tone that matched our sour view of the next six months. We are lowering our F2012 EPS estimate to $1.80 from $2.00, but the stock already appears to discount a pessimistic scenario (retail downturn, share losses, modest destocking). Meanwhile, the board of directors raised the dividend 50% after the market closed, raising the yield to 3.3% (although some shareholders preferred a buyback). Thor has $3.86/share in cash and no debt.

• Winnebago: We are lowering our F2012 EPS estimate to $0.20 from $0.46 to acknowledge the strong link between consumer/dealer confidence and demand for Winnebago motorhomes. However, like Thor, the market appears to discount a pessimistic scenario. Importantly, unlike the 2008-2009 correction, dealer inventory is in better shape, implying a less severe destocking cycle this time – allowing Winnebago to stay in the black. Separately, we like Winnebago’s plan to expand into towables, fueling incremental growth. The company has $2.25/share in cash and no debt.

This summary of a Baird research report is not intended as investment advice. To participate in Baird surveys and receive research reports, contact Craig R. Kennison, CFA, at ckennison@rwbaird.com.

 

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