Upside Stocks: Revving up RVs
09/27/2016 7:00 am EST
We tend to be skeptical of companies that rely on acquisitions for all their growth; the two acquirers below have solid organic growth rates, explains Richard Moroney in his small cap focused advisory service, Upside Stocks.
Both stocks — which operate in the recreational vehicle and related markets — are making deals in fields in which they already operate, reducing the risk of post-acquisition surprises.
Both have solid balance sheets and cash flow, suggesting more deals are likely. And finally, both have earned our highest "Best Buy" rating.
Patrick Industries (PATK) has completed six acquisitions so far in 2016, spending roughly $113 million and boosting revenue by nearly $150 million.
Patrick, a leading provider of building products to the manufactured housing and recreational vehicle (RV) markets, purchased BH Electronics, a supplier of components to boat makers, generated annual sales of $35 million.
In 2015, Patrick completed three deals valued at $140 million, including the $85 million purchase of a maker of laminated wood products. The company closed four acquisitions in 2014.
Wall Street sees Patrick growing per-share profits 31% to $3.57 in 2016. Over the next five years, the consensus calls for 15% annualized per-share-profit growth.
Patrick earns an Overall score of 96, with an outstanding 98 in Earnings Estimates. The stock, up 48% so far this year and capable of climbing another 20%.
A leading maker of recreational vehicles, Thor Industries (THO) has made one acquisition this year — the $576 million purchase of rival Jayco in July.
The deal expands the company’s presence in towable campers, including Jayco’s popular Jay Flight models — the best-selling travel trailer for 11 consecutive years. Thor’s leading brands include Airstream and Dutchmen campers.
Thor should announce July-quarter results on September 26. Per-share earnings are expected to increase 18% to $1.34. The consensus for fiscal 2016 ended July is $4.69, up 31%.
Thor earns an Overall score of 96, with a 63 in Value. Trading at 17 times trailing earnings, the stock seems reasonably valued considering its earnings trajectory.
By Richard Moroney, Editor of the Upside Stocks