The stock price of Winnebago Industries Inc. and other publicly traded RV firms have slipped lower in recent weeks as investors worry about the impact on the RV market of high fuel prices and likely higher interest rates.
But investment publication Barron’s is touting Winnebago shares for the same reason many in the RV industry are upbeat: demographics.
“Like a python’s dinner, the Baby Boomer generation is a fat demographic bulge slowly passing through the belly of American consumerism,” according to Barron’s story by writer Vito J. Racanelli. “About 11,500 of us are turning 50 every day – more than four million annually for the next several years. That will drive up demand, no doubt, for dentures, hip replacements and, increasingly, for recreational vehicles, too.
“The well-off among the over-50 crowd are far and away the prime purchasers of those seemingly ubiquitous, big RVs chugging along America’s highways these days.
“These folks are also the fastest-growing portion of the population and as a group they define a powerful, positive factor for Winnebago Industries, the country’s biggest maker of motorhomes (when Class A’s and Class C’s are combined). Those vehicles make up about 60% (in dollar terms) of the $12 billion RV industry.”
Lately, however, investors have chosen to ignore Winnebago’s fundamental strength and fret over the anticipated increase in interest rates and lofty fuel prices, according to Racanelli. On Thursday (June 10), the last day of stock market trading prior to Ronald Reagan’s funeral, Winnebago shares closed at $29.36 a share in New York Stock Exchange trading.
The 52-week high for Winnebago shares is $37.88 reached in late January. The stock’s 52-week low of $17.25 was set around July 1, 2003.
Winnebago will reveal its earnings for the March-through-May period on Thursday (June 17).
“Two-thirds of a motorhome’s sticker price – generally, $50,000 to $350,000 – typically is financed,” Racanelli wrote. “And gasoline prices now average over $2 a gallon in the U.S. (they slipped below $2 a gallon on Friday), compared with about $1.60 at the beginning of 2004, according to the Energy Information Administration. That will bump up RV travel costs, since these rigs get just eight to 10 miles a gallon.
“Consequently, shares of Winnebago have taken a licking. Investors remain nervous.
“Granted, fuel prices probably won’t drop (significantly) anytime soon, and rates appear almost certain to head north, but the market might be letting these factors cloud a powerful and persistent demographic play.
“Winnebago has a strong balance sheet, with no long-term debt. It routinely produces a 20%-plus return on equity. And it should see double-digit earnings growth over the next few years.
“With a story like that, and with its shares down significantly, Winnebago represents good value to investors who are in for the long haul. If oil prices stabilize and interest rates rise at only a ‘measured’ pace, as the Federal Reserve has indicated they will unless inflation really spikes, investors could see the shares rise 15% to 30% over the next 18 months.
“Nobody can predict fuel prices and interest rates with certainty, but as long as consumer confidence holds up, more and more retirees will satisfy their wanderlust by taking to the road in recreational vehicles. Their golden years should be Winnebago’s, too.”