Wall Street continues to pounce on the surprisingly good report Tuesday from Thor Industries Inc.
Soleil Securities maintains a “Buy” rating on Thor Industries and raised its price target from $29 to $35, according to streetinsider.com.
A Soleil analyst said, “With Thor’s market shares increased to 31.1% in towable RVs (vs 30.4% last year) and 17.7% in motorized RVs (vs 15.1%), Thor is one of a very few viable RV companies left in an improving industry. We are raising our FY10 estimate to $1.32 per share (vs FY09’s $0.50, the record $2.87 in FY06, and our prior estimate of $0.94) given excellent expense controls and improvement in an industry now with fewer competitors. We are introducing a FY11 estimate of $1.65 per share, assuming Thor continues to pick up share given its long-standing, good relationships with dealers and customers.”
Meanwhile, Craig Kennison from Robert W. Baird & Co. had this to say:
Thor reported an impressive quarter, with meaningful upside from aggressive cost management. We see significant improvement in RV fundamentals, including: 1) positive shipment growth, 2) a better inventory replenishment rate, and 3) improving consumer dynamics. We are raising our estimates on a better margin outlook. We would prefer a better entry point, but see more opportunity in Thor than Winnebago at current levels.
EPS tops forecast. EPS of $0.45 beat our Street-high $0.28 estimate ($0.23 consensus). Recall that Thor had previously released preliminary sales results, so the upside was purely a byproduct of aggressive cost management. Operating margin of 7.1% topped our estimate by 300 basis points (bp), driven by better gross margin (+190bp) and lower operating costs (+110bp). For perspective, this margin result is 550bp better than last year and only 160bp shy of the best quarter on record – an impressive achievement given the challenging industry backdrop.
Focus on replenishment rate. Our checks suggest that wholesale shipments are now tracking with retail sales. Until recently, dealers were replenishing inventory at well below a 1:1 pace. Recall that the RV backlog doubled at Thor in Q4 – and our checks indicate that order trends continue to improve.
Stocks miss towable/motorhome divergence. RV shipments improved for the first time in 22 months in August (+9%) – a notable milestone. But while towables jumped 14%, motorhomes fell 33%. We find it difficult to reconcile this divergence with the fact that Winnebago shares have tripled from the March lows, while Thor shares have “only” doubled.
Earning outlook improves. We are raising our F2010 EPS estimate to $1.50, up significantly from our $0.90 estimate (better margin). Our new $33 target price is based on 16x our forward EPS estimate one year from now, with consideration for cash ($6/share, no debt). We would prefer a better entry point, but see more opportunity in Thor than Winnebago (WGO – Neutral/$14.14) at current levels.