Editor’s Note: The following is a breakdown of three key RV stocks by Investors Business Daily.
Somewhere beyond the gloom of Washington’s fiscal cliff standoff, another couple is buying a brand-new, $100,000 motorhome.
Recreational vehicle sales have rumbled to record levels this year, driving stocks like Winnebago Industries Inc. (WGO), Thor Industries Inc. (THO) and Patrick Industries Inc. (PATK) well above the pace of the general market.
Combined, they have since October held the building/mobile/manufactured homes group in a top 20 ranking among the 197 industry groups tracked by IBD.
Winnebago reiterated that status this week, breaking out above a 14.59 buy point to its highest mark since April 2010. The stock ended the week with an 18% gain and 13% above the flat-base buy point.
Shares gapped up last week after the Forest City, Iowa-based company reported a 550% gain in earnings on a 47% revenue jump. Both numbers trounced analyst consensus forecasts.
The motorhome maker said its backlog had tripled over year-ago levels. Management also said it was increasing production, and had been adding employees for the past two quarters to meet demand.
The stock is thinly traded but carries a 97 Composite Rating. The flat base was a second-stage structure.
• Drew Industries Inc. (DW) makes popular slideout mechanisms and other components for motorhomes and trailers. The stock is also thinly traded and holds a best-possible 99 Composite Rating. It jumped 7% this week, clearing a 32.01 buy point.
• Thor Industries makes a wide range of RVs, with most of its revenue coming from trailers. Its shares surged 12% this week, retaking support at their 10-week moving average. The stock, which holds a 99 Composite Rating, corrected 22% in the five weeks to Dec. 14.
• Patrick Industries, which makes building and frame components for RVs and manufactured homes, showed little reaction to this week’s news. The stock bolted nearly 400% for the year to mid-October, then fell into a correction. It closed Friday 26% below its October peak.
A weak job market and rebounding gasoline prices make it an unlikely time for a renaissance in the recreational vehicle trade.
But, according to a report by Investors Business Daily, the industry’s top players are on a tear.
Thor Industries Inc. shares climbed in eight of the past nine weeks, posting a gain of about 50% since a Nov. 29 low. Winnebago Industries Inc. gained in nine of the past 11 weeks, and is up more than 65% from a Nov. 25 low.
Manufactured housing and park model builder Cavco Industries Inc.’s stock rose five of the past eight weeks, and has added more than 45% since Dec. 19 and more than 80% since Aug. 10. Drew Industries, an RV amd MH components supplier, spiked 8% Monday after a fat fourth-quarter earnings win.
On Feb. 2, Thor released preliminary results for its fiscal second quarter, pointing to 12% overall sales growth. The company gave no sales forecast, but analysts’ consensus estimate calls for a 140% EPS gain when the company reports March 5.
A statement from Chairman, CEO and President Peter Orthwein cited some positive trends.
“Sales momentum remains strong,” he said, adding that results from January trade shows indicated “rebounding consumer confidence, access to credit and low interest rates.”
Brett Jordan, an analyst with Avon Partners, said a large piece of Thor’s momentum owed to a promotion with GE Capital. Starting in mid-September, around Open House in Elkhart, Ind., GE and Thor combined to cover the interest on loans to dealers restocking their floor inventories.
“You could argue that there was a fair amount of unseasonable demand for their product since the dealers were being subsidized to take it,” Jordan said.
Jordan also sees a cyclical component to the stock’s gains. That would help explain why shares of Winnebago, which did not participate in the promotion, are also going great guns.
Craig Kennison, analyst with R.W. Baird & Co., says recreational vehicle stocks often act as an early economic indicator, and the gains could be tied to a changing stance among larger investors. Kennison said he’d been fielding calls from active investors “doing fresh work on the sector,” possibly linked to rising consumer-confidence data.
“More broadly, we’ve seen investors shift from a defensive profile to a more aggressive stance, which has helped the riskier side of the consumer space,” he wrote in a report.
Editor’s Note: Robert W. Baird & Co. conducted a quarterly survey of 122 RV dealers to assess recent trends. The following offers a summary of the results.
Retail improves as confidence rebounds. Retail improved during the seasonally weak quarter as consumer confidence rebounds. Inventory is healthy, but dealers may defer orders after taking advantage of incentives at the fall Elkhart show. We see value for patient investors and note a recent lift in investor sentiment after an awful year.
• Decent off-season retail: Traffic was mixed, but dealers reported growth in motorhomes (+5-7%) and towables (+7-9%) during the seasonally weak December quarter. Better consumer confidence and favorable weather appeared to help. Separately, Statistical Surveys Inc. reported that U.S. motorhome retail improved 2% in November, corroborating our observations.
• Inventory levels hold steady: Dealers report 117 days of towable inventory (down from 119 days last year) and 127 days of motorhome inventory (down from 133). However, some dealers are still taking delivery on orders placed at the fall Elkhart show, which offered heavy incentives on towables. Thirty five percent of towable dealers consider inventory “too high” versus just 15% of motorhome dealers.
• Dealer sentiment rises above key threshold: Dealer sentiment rose above 50 for the first time since October 2007, hitting 55 in our most recent survey of current conditions (50 is neutral). The move coincides with a recovery in consumer confidence we consider essential to a broader recovery in the RV sector.
• Credit trends remain favorable, but unchanged: Access to both wholesale and retail credit remains healthy, but largely unchanged. Dealers liked the GE Capital promotion, which covered floorplan interest costs through the winter on product from Thor and Forest River.
• Outlook: After an awful year for RV stocks, investor sentiment is beginning to recover as consumers and dealers grow more optimistic. We see value for patient investors, noting that inventory is healthy and expectations for 2012 retail seem reasonable (Thor retail up 3%, Winnebago up 1%), setting the stage for better shipments if the economy recovers. Thor has $3.77/share in cash and no debt, with a chance to earn over $3/share in a recovery scenario. Meanwhile, Winnebago has $2.45/share in cash and no debt, with the potential to earn over $1/share in a recovery scenario.
Note: Contact your Baird representative for a complete copy of our 39-page dealer survey.
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 firstname.lastname@example.org.
Wall Street analysts are taking another look at RV stocks as investments.
Citi today (May 21) said it maintains a “Buy” on Thor Industries Inc., but removed it from its Top Picks Live list.
A Citi analyst said, “We continue to rate the stock a Buy with decent stock upside over the next 12 months given decent underlying demand. However, given THO shares are trading near its 2-year high, shares may be pressured in the near-term by a volatile stock market and inclement weather, which may unfavorably impact retail sales and slow down the company’s momentum. Thus we are removing THO from our Top Picks Live! list.”
To see all the upgrades/downgrades on shares of Thor, click here.
Meanwhile, SmartTrend had this to say about some RV stocks:
Below are the top five companies in the Automobile Manufacturers industry as measured by lowest relative performance. Some analysts believe that stocks with lower relative performance are a better bargain.
Winnebago Industries Inc. ranks first with a loss of 13.51%; Thor Industries Inc. ranks second with a loss of 7.76%; and Ford Motor ranks third with a loss of 6.49%.
Daimler follows with a loss of 6.38% and Honda Motor rounds out the top five with a loss of 4.23%.
SmarTrend is bearish on shares of Winnebago and our subscribers were alerted to Sell on May 06, 2010 at $14.34. The stock has fallen 13.4% since the alert was issued.
Investors are looking to this morning’s opening on Wall Street to learn whether Thursday’s record plunge was a fluke or something more.
Panicked selling sent the U.S. stock market into a freefall Thursday afternoon, when program trading by high-frequency traders kicked in, according to Market Watch, a service of the Wall Street Journal.
RV stocks felt the wild trading with leading stocks closing lower but not in dramatic fashion.
- Winnebago Industries Inc. closed at $14.53, down 88 cents or 5.71%. It fell as low as $13.06 a share during the day.
- Thor Industries Inc. closed at $33.90, down 47 cents or 1.4% on volume of 1,007200, nearly twice its normal trading volume.
- Drew Industries Inc. closed at $21.65, down 80 cents or 3.7% on volume of 238,400 shares.
At its lows, the Dow Jones Industrial Average was down 998.50 points, which ranks as its biggest intraday drop in its history, at least on a points basis. It finished down 347.80 points, or 3.2%, at 10520.32 amid declines in all 30 of its components. The drop was the worst in point terms since February 2009 and the worst in percentage terms since April 2010.
The selling accelerated after a sharp drop in shares of Procter & Gamble (PG 61.31, +0.56, +0.92%) and at least one other DJIA stock, 3M Co. (MMM 83.54, -0.70, -0.83%) , market watchers said.
The Securities and Exchange Commission and the Commodity Futures Trading Commission issued a joint statement late Thursday, saying they were working with exchanges and other regulators to review the session’s “unusual trading activity.”
“We will make public the findings of our review along with recommendations for appropriate action,” agency officials said in a statement.
Shares of Procter & Gamble plunged to $39.37 at one point from around $60. The New York Stock Exchange said each stock has its own circuit-breaker level. When these stocks fall below their levels, then they can be traded on any other exchange or platform at any price. When P&G fell below its circuit breaker, a bid came in for the stock at $39.37 from the Nasdaq, the NYSE said.
“You don’t see a blue-chip stock like this go down 20 points with no news,” said Frank Ingarra, co-portfolio manager at Hennessy Funds, a quantitative firm that deals with program traders. “All of the algorithms kicked in from this errant thing.”
The Big Board also saw 3M fell below its circuit-breaker level.
Several market watchers said they heard a major firm may have accidentally released an errant program trade using e-mini contracts, which are traded at the Chicago Mercantile Exchange. A spokeswoman for the CME said its markets “functioned properly without issue.”
Traders also noted unusual trades among exchange-traded funds, including the iShares Russell 1000 Value Index Fund (IWD), which dropped from close to $60.00 to 7.5 cents.
“These ETFs traded to lows that are not mathematically correct,” he said.
While most quantitative-driven programs would normally try and take advantage of market aberrations like Thursday’s violent drop, it is murky whether program trades were more involved in driving the market down or helping push it back up.
“It’s very hard to tell whether the initial trades caused others to follow suit and jump in, thinking this was a true market move,” said Adam Allam, managing director at Instinet, which executes program trades on behalf of its clients. “Everyone at this point’s just guessing or trying to justify why that move happened and it’s quite plausible it was an error.”
Traders leaving for the day faced a growing media horde waiting for them. They described the session as “roller-coaster,” “madness” and just plain “crazy.”
One trader who has been on the floor for more than 20 years said he’d never seen it like Thursday.
“We were just watching the trades go through, and nothing was getting down to us on the floor,” he said. “We were blindsided.”
Others said there was an eerie calmness to the ride.
“It was kind of somber,” one said. “It wasn’t as crazy as you’d expect.”