Now would seem the worst time to buy stock in a high-end recreational vehicle company, based on current events. But, according to a report in the Wall Street Journal, it may be an opportune time to employ the “buy-low-sell-high” mantra.
Interest rates have gone up while gasoline prices jumped to an average of $3.02 a gallon last week from $1.84 a year ago according to AAA. RV stocks have been in reverse for more than a year as some investors worry about the short-term outlook.
But others with a longer-term view may be interested in Coburg, Ore., RV maker Monaco Coach Corp., whose shares have fallen by half since surpassing $31 in April 2004, according to the Wall Street Journal.
Those who see an accelerating trend toward mobility in retirement – particularly among the baby-boom generation – may find Monaco a good long-term bet at these prices, said Jamelah Leddy, an analyst at brokerage firm McAdams Wright Ragen in Seattle.
“The time to buy a cyclical stock is when it looks really bad, and it looks really bad right now,” Leddy said. She said she doesn’t own Monaco stock, and her firm doesn’t provide banking services to the company.
Monaco makes a range of high-end diesel- and gasoline-fueled motorhomes and towable RVs under the Monaco, Holiday Rambler, Safari, Beaver and McKenzie brands. Its vehicles have features such as satellite televisions, custom kitchens, multiple bedrooms and slideouts for more room. Its top-of-the-line Signature Series RVs start at $536,000. Some models run as high as $1.4 million, depending on custom features.
Monaco’s rivals include Fleetwood Enterprises Inc., Thor Industries Inc. and Winnebago Industries Inc. While those rivals’ names might be better known to the public, Monaco’s 25% of the U.S. diesel motorhome market makes it that segment’s leader, Leddy said, who rates Monaco shares a “buy.” She forecasts the stock will rise to $20 during the next 12 months.
The motorhome industry has faced overcapacity and overproduction for more than a year, leading to price discounts and dealer incentives that have cut profits. Monaco’s management has seen the company through many such cycles, said James Ragan, an analyst at Crowell Weedon & Co. in Los Angeles. The company has no long-term debt, its debt-to-equity ratio is a low 0.023%, and cash flow remains positive.
“The best thing they can do is improve the product and continue to update the models and satisfy the demands out there,” Ragan said about Monaco’s management, led by Kay Toolson, chief executive since 1987. Ragan rates the stock a buy and has a $21, 12-month price target.
Monaco’s second-quarter profit fell to three cents a share from 40 cents a share in the same period a year earlier; sales dropped to $306.2 million from $357.8 million. The company forecasts third-quarter sales of $325 million to $435 million and has given no earnings estimate. Sales were $358.9 million a year ago, with profit of 25 cents a share. The company is forecast to have third-quarter profit of 18 cents a share, the average analyst estimate in a Thomson Financial survey.
Monaco closed its Royale Coach bus conversion division and an Oregon factory in the second quarter, which the company expects will save 10 cents a share each year. Monaco now emphasizes sales of towable products, such as fifth-wheel and travel trailers, which rose almost 10% in the first half.
The Wall Street Journal said Monaco is also seeing a strong response to its Franchise of the Future program, introduced in June, in which participating motorized dealers get incentives to set up distinctive areas for the company’s products. The program already covers 75% of the company’s units for sale.
Some analysts remain concerned about higher gas prices and the economy’s outlook, especially after Hurricane Katrina, on the RV market.
Analyst Craig Kennison at Robert W. Baird & Co. recently cut his sales and profit estimates for Monaco, Thor and Winnebago, citing rattled consumer confidence that may curb retail demand for RVs. He has a neutral rating on Monaco stock with an $18 12-month price forecast. His company expects to seek banking business from Monaco in the next three months.
While concern about fuel prices has escalated since Hurricane Katrina, such increases often have more of a psychological impact than a pocketbook impact on large RV owners, Leddy said.
The average RV owner drives about 5,900 miles a year and gets 10 miles to the gallon, Leddy figures. A $1 increase in gasoline price adds only $590 to a year’s operating expense, a relatively small amount considering the price tag for an RV.
“In an upcycle, Monaco can be extremely profitable,” Ms. Leddy said. “But the timing of that is extremely difficult to predict, which is why the stock continues to trade downward.”