In raising its target price to $30, the investment firm noted, “Thor reported decent sales and robust order growth as dealer inventory hits bottom. We expect better retail results by year-end as consumer confidence improves, and note that demand has shifted to low-end, no-frills RVs — a trend that favors Thor. As discretionary stocks lead the market rally, we’d look for opportunities to add in the low $20s.”
Thor stock was trading in the $26-range today on Wall Street.
In particular, Baird made these observations:
- RV sales top forecast. Thor reported preliminary sales for the July quarter, following its customary process. Sales fell 23% to $440 million – just shy of our $451 million estimate, but above the $425 million consensus estimate. RV sales fell 26% to $337 million – roughly in line with our $333 million estimate. Meanwhile, bus sales fell 10% to $103 million – well short of our $118 million estimate, accounting for the shortfall.
- Retail poised to turn positive. Our checks confirm that retail sales fell during the quarter, but July trends were not as bad as May/June. Indeed, we expect retail demand for RVs to post positive comps by the end of the year, reversing a long-term trend.
- Destocking trend over? Evidence is building that dealer efforts to reduce inventory have hit bottom – at least in the towable market. At Thor, the backlog jumped 45% to $588 million. Excluding the bus backlog (+11%), the RV backlog more than doubled to $298 million. Notably, our checks indicate that the motorhome backlog fell slightly, implying a nearly 150% jump in the towable backlog – a meaningful positive for Thor. After slashing inventory, dealers seem to have hit bottom, forcing orders despite the difficult environment.
- Outlook. As the RV cycle turns, Thor is positioned well among the survivors — accumulating cash, cutting costs and gaining share. We are maintaining our Street-high EPS estimates and expect healthier fundamentals (better retail demand and dealer orders) to yield better returns.
Meanwhiule, Baird retained its four-quarter earnings-per-share (EPS) estimate of 28 cents but raised its Fiscal Year 2010 EPS estimate to 90 cents from 88 cents.