News Update: Winnebago Industries Inc. stock, which had lost 31% of its value since hitting a year high of $16.44 in October, added 87 cents, or 7.7%, to $12.20 in trading after release earlier today of the following report.
Editor’s Note: Robert W. Baird & Co. issued this client recommendation on the stock of Winnebago Industries Inc.
With the stock approaching our $11 target price, we are raising our rating to Neutral (from underperform). We remain concerned that profitability may remain elusive given breakeven levels near 3x F2009 volume, but note the robust wholesale recovery, strong backlog, and signs of better retail demand.
Robust recovery, but skinny profits. Our fundamental outlook for Winnebago is unchanged. We see a robust wholesale recovery – but meaningful profits may lag. Indeed, our model assumes 20% retail growth, share expansion, and 142% shipment growth – but Winnebago likely will lose money in F2010 and earn just $0.56 ($0.36 tax-affected) per share in F2011.
Better news flow. Thor recently reported strong results, driven by improving demand for towables and a large rental order. Meanwhile, our checks suggest faint signs of better retail demand at some pre-season shows, supporting the optimistic viewpoint – but towables are performing better than motorhomes. Still, given the crowded short position in Winnebago shares and positive bias to news flow – and with the stock near our $11 price target – we believe Neutral is the appropriate rating.
Reports March 18. Winnebago is scheduled to report Q2 results March 18. Our estimate is below consensus. We note that supply constraints may limit shipments, but fuel a larger backlog. In recent quarters, the stock has been more sensitive to the backlog trends than profitability.