Two for the Road

09/17/2004 12:00 am EST


Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

The Forbes Newsletter Group has brought together many of the best minds in the financial advisory world. Coincidentally, two of its top editors, Michael Ozanian and Vahan Janjigian, have found recent buys among recreational vehicle makers. Here are two for the road.

"Winnebago Industries (WGO NYSE) is the most dominant and profitable maker of motor homes in the US; indeed, its name is synonymous with motor homes" says Michael Ozanian, editor of Forbes Earnings Quality Report . "The firm reported a blow-out fiscal third quarter; sales jumped 55% to $310 million for the quarter and are expected to be $1.1 billion for the year. The company benefited from strong sales of fuel-efficient diesel powered motor homes. The average selling price for the diesel motor home units is about $140,000, or twice the price of gasoline-powered units. This forced analysts to raise their estimates for the year ending in August by 11%, to $2.11 per share. In 2005 analysts expect earnings to jump to $2.37 per share. Since 1999, EPS has jumped 17% annually and sales have risen 11% a year. With a pristine balance sheet and no debt to pay off, the company has used some of its cash to buy back shares and has reduced the number of shares outstanding by 23% since 1999 helping boost earnings. The future looks bright with sales backlogs up 72% at the end of the third quarter and the demographics are only going to improve. Baby-boomers are the most important age group for motor homes and this year could be the biggest year for RVs in 25 years, due to continuing low interest rates and the number of Americans approaching retirement age. From a valuation standpoint, WGO looks cheap, trading at one times sales and at a p/e of 15. As the leading name in motor homes, look for Winnebago to expand its market share and increase earnings by at least 14% annually. Our target price for the next 12 months is $38."

Vahan Janjigian, editor of Forbes Growth Report, says, "Although Winnebago is its best-known competitor,  Thor Industries (THO NYSE) has an estimated 25% share of the recreational vehicle market, with brand names such as Airstream, Dutchman, Four Winds, and Breckenridge. Thor sells its RVs to 1,562 dealers throughout the US and Canada. RVs are usually produced to order, which allows the company to carry only a minimal amount of finished inventory. The company also makes small- and mid-size buses, including airport shuttles, mass transit buses, and tour buses. Sales for the first nine months of fiscal 2004 were up 36% year-over-year to $1.6 billion. Excluding revenues due to an acquisition, nine month sales rose 22.3% to $1.4 billion and pre-tax income was up 22% to $111 million. GAAP net income was $74 million or $1.29 per share, up 31%. Backlog as of July 31, 2004, was up more than 60% to $495 million, boosted by double-digit increases in all of its product categories. The company has yet to release full results for the fourth quarter of fiscal 2004, but sales were up 48% from the prior year to $624 million. Excluding contributions from an acquisition, sales for fourth quarter were up 35.3% to $571 million. Rising interest rates and energy prices pose a risk, yet favorable demographic trends outweigh these concerns. With more than a quarter of the US population over the age of 55 and growing, Thor's prospects look promising indeed."

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