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Baird: Thor’s Financials Reveal ‘Solid Margins’

Editor’s Note: Robert W. Baird & Co. issued a client newsletter to investors following the release of Thor Industries Inc.’s 4Q and year-end financials. The following offers a summary of the results.

• Overview: Earnings per share (EPS) topped expectations on solid margin performance and a lower tax rate. After several disappointing quarters in which margin fell below expectations, the lack of any surprises is a plus. Meanwhile, reports from the Elkhart, Ind., industry event suggest momentum is building, supporting an appetite for more dealer inventory.

EPS tops expectations: Q4 (July) EPS topped the consensus estimate (84 cents vs. 79 cents) and our 77 cent estimate, driven by lower taxes (+5 cents) and better bus margin (+2 cents). RV margin met our expectation (slight upside in motorhomes, slight downside in towables), a good sign given investor concerns about persistent discounting. Thor also reported robust preliminary sales (+15%) and a strong RV backlog (+48%).

Sentiment improving following Elkhart event: Thor and other leading RV manufacturers hosted an open house for thousands of dealers in Elkhart. Multiple sources indicated strong attendance, healthy orders, and enthusiastic dealers. Inventory is expanding – but lenders tell us that dealer lines of credit are underutilized as retail improves. We expect to have better information after we conclude our Q3 RV dealer survey, but it may be fair to say that dealer inventory is closer to “balanced” that “lean.”

More balanced outlook: RV stocks have surged recently (WGO up 23%, THO up 20%) as investors pursue: a derivative play on housing; improving industry trends; and an appetite for risk in a bull market. Thor’s results, the Elkhart open house and housing signals all support a more favorable outlook, in our view. Meanwhile, we like Thor fundamentals, noting its market leadership, strong balance sheet ($4/share in cash, no debt), and lack of European exposure. We are raising our price target to $38, but acknowledge likely diminishing upside from here.

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