Patrick Industries (PATK) manufactures components and distributes materials for the recreational vehicle (RV), marine, housing, and industrial markets, explains Doug Gerlach, editor of Investor Advisory Service.
The company’s largest exposure is in the RV market, which accounts for approximately 60% of sales. Products in this segment include appliances, HVAC systems, and fuel tanks, to name just a few.
Its second largest market, marine, is approximately 15% of sales. This segment has grown rapidly in recent years, helped by acquisitions and products are targeted primarily at the recreational powerboat market. The balance of revenues comes from building materials.
In 2020, the “leisure lifestyle” markets served by Patrick Industries benefitted greatly from positive secular trends driven by the COVID-19 pandemic. It was clear at the beginning of 2021 that these trends were likely to continue past the expected resolution of (at least) the most immediate effects of the pandemic.
In addition, Patrick’s success in 2020 allowed the company to continue with its M&A activities, closing on nine acquisitions in the first nine months of the year. Management indicated that its acquisition pipeline was full of other possible purchases which will boost results down the road.
These trends continued in the fourth quarter of fiscal 2020 and first quarter of 2021. In Q4, revenues grew 41% (32% after removing the impact of acquisitions). EPS increased more than 90%, driven by both the strength of sales in the leisure lifestyle markets and margin expansion.
Management offered an upbeat outlook for 2021, and though some of the sales will be due to inventory restocking, the company expects to outpace wholesale shipments in the RV segment by 3%-5%.
In Q1, Patrick reported total revenue growth of 44% and organic growth of 34% over Q1 2020. RV and marine sales continued to be strong, accounting for 75% of revenues. Again this quarter, margin leverage helped boost operating EPS by 74% and GAAP EPS by 124% over the year-ago quarter.
Management reported strong retail demand in its leisure lifestyle markets; this strength, coupled with lower dealer inventories, points to meaningful continued growth which is expected to carry into 2022. The company now sees wholesale RV and marine unit shipments this year up at least 25% and retail sales up low- to mid-single digits in each segment.
One risk factor to watch is any constraint in the supply chain, but management notes that the industry has done a good job thus far of managing challenges in this area.
We maintain our long-term EPS growth rate estimate of 15% and believe that a 20% annualized total return is possible from the stock’s current price around $89.
But this is a robust price driven by Patrick Industries’ strong fundamental performance in the last two quarters, so we rate the stock a hold. To balance out the possible risk levels from the potential reward, our maximum suggested buy price is $76.
