For many people, the name Winnebago (WBO) is practically synonymous with motor homes. Its reputation and long-standing position as a leader in the RV industry make it an appealing candidate for investors, suggests Doug Gerlach, editor of Small Cap Informer.

Once known almost exclusively as a maker of motorhomes, Winnebago’s product line has seen its towables business grow greatly, now accounting for more than half of sales. Towables range from tiny teardrop trailers aimed at Millennials & Generation X-ers, to fifth wheel trailers that retail for more than $100,000.

The total RV market in North America is changing and growing significantly, which bodes well for Winnebago. The market for RVs has grown at 15% annually since 2009.

More than 60% of Americans indicate that they are occasional or more frequent campers, and a growing number are using RVs as the primary accommodation. Millennials now surpass baby boomers, and 53% of them say they are interested in buying an RV, with 26% calling themselves highly likely buyers.

In 2018, Winnebago acquired iconic boat maker Chris-Craft in a cash deal funded by Winnebago Industries, Inc. is a leading U.S. manufacturer of outdoor lifestyle products under the Winnebago, Grand Design, and Chris-Craft brands, which are used primarily in leisure travel and outdoor recreation activities.

In addition to the Chris-Craft acquisition, the company also announced the launch of an all-electric, zero-emission commercial vehicle platform in conjunction with a strategic partnership with Motiv Power Systems, a U.S. market leader in medium-duty electric vehicle chassis.

We are looking for 11.7% annualized growth through 2022 for Winnebago Industries. Analysts who follow the stock on Wall Street are projecting 15% growth, so our estimate provides an additional margin of safety.

We do expect that the next recession may cause a hit to Winnebago’s business, but demographic trends may help provide a buffer and post-recession recovery should drive results towards our target fairly rapidly. Free cash flow is very strong, supporting earnings and providing flexibility for capital expansion. Return on equity is stable at an excellent 24.1% in fiscal 2017.

On the downside, the stock has often descended to a P/E of around 9.5 in the last five years, so we are setting our future low P/E at that value. Using trailing 12-month EPS of $3.08, a low price of $29 is calculated.

We have set our future high price/earnings ratio expectation at 17.1, below the 52-week high P/E of 19. If EPS reach $5.36 in five years, a high price of $92 is indicated. Including a modest dividend, the stock could deliver a total annual return of 21.3% through 2022.

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