On the Road: 3 Plays on RVs

02/13/2017 7:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Richard Moroney, editor of Upside — a newsletter focused on small and mid cap stocks — has three current recommendations for stocks involved in the recreational vehicle market.

One of the world’s largest makers of recreational vehicles, Thor Industries (THO) is in the right place at the right time.

Industrywide wholesale RV shipments for the U.S. and Canada surged 15% to nearly 431,00 units in 2016 — the highest annual total in more than 40 years, according to The Recreation Vehicle Industry Association.

Shipments, which have risen for seven consecutive years, are expected to climb again in 2017, fueled by accommodative financing and relatively cheap fuel prices.

For fiscal 2017 ending July, per-share earnings are expected to surge 30% to $6.39, helped by acquisitions. Revenue is projected to jump 48%. Thor is a Best Buy.

Founded in 1958, Winnebago Industries (WGO) is the No. 3 maker of RVs. It makes motorhomes (90% of revenue in fiscal 2016) and towable campers (9%) that range in price from $19,000 to $447,000.

The company is benefiting from robust demand, reflecting healthy consumer spending and favorable demographic trends.

A growing dealer network, increased manufacturing scale, and product launches should help sustain near-term growth. Improved operational efficiencies should bolster profit margins, while ample free cash flow supports capital spending and acquisitions.

Winnebago, trading at only 13 times expected fiscal 2017 earnings, earns an Overall score of 91 and is being initiated as a Buy.

Patrick Industries (PATK), a maker of building products for recreational vehicles and manufactured housing, is spending money to make money. Capital expenditures doubled over the past year to $14 million. Free cash flow jumped 86% to $76 million.

Earning a Value score of 45, Patrick is not a bargain. But the price/free-cash-flow ratio is a reasonable 17, and the stock offers superior operating momentum. Robust shipments, market-share gains, and contributions from acquisitions should help sustain earnings and cash-flow growth.

Patrick completed seven deals in 2016, spending roughly $138 million. Wall Street expects Patrick’s per-share earnings to climb 17% in 2017. Patrick, with a Momentum score of 96, is a Best Buy.

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