Patrick Industries: RVs and Boats for the "Leisure Lifestyle"

12/09/2020 5:00 am EST

Focus: TRANSPORTATION

Douglas Gerlach

President, ICLUBcentral, Inc.

Patrick Industries (PATK) manufactures components and distributes building materials for the recreational vehicle (RV), marine, housing, and industrial markets, observes Doug Gerlach, editor of Investor Advisory Service.

The company’s largest exposure is to the RV market, which accounts for approximately 60% of sales. Its second largest market, marine, is approximately 15% of sales, and has grown rapidly in recent years, helped by acquisitions. The company’s products are targeted primarily at the recreational powerboat market.

The RV and marine businesses address what Patrick labels its “leisure lifestyle” markets, which are benefitting from positive secular trends. During the pandemic, its leisure lifestyle markets have held up reasonably well as individuals have sought out safe outdoor recreational activities.

Despite the pandemic, the company spent $125 million total on nine acquisitions through the first three quarters of 2020. More M&A can be expected in the near-term as well, as management cited a “very strong” acquisition pipeline on its recent earnings call.

The company reported good Q3 results as people choose to spend more time outdoors. RV revenue grew 36% and marine advanced 25%. Given the optimistic outlook for its various end markets, the company restarted share repurchases in Q3.

In order to keep up with what it expects to be strong demand into 2021 and beyond, Patrick is aggressively investing in its infrastructure, pulling forward investments.

Also, along with the earnings release the company announced it spent nearly $100 million on acquisitions to expand product offerings in the RV, marine, and industrial end markets.

In Q4 the company anticipates continued strength in its lifestyle end markets with 25%-30% growth in RV wholesale shipments and a 10%-15% increase in marine wholesale shipments.

Looking ahead, we anticipate the company will grow earnings 15% annually over the next five years. This implies EPS of $7.74. Applying a high P/E of 17.8, we get a potential high price of 138.

Using a low P/E of 8.5 and last year’s EPS of $3.85 results in a low price of 33. This represents an upside/downside ratio of 3.3 to 1 and a projected high return of nearly 20% annually.

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