Is Winnebago a buy after reporting record Q1 profits?
Recreational vehicle (RV) manufacturer Winnebago Industries, Inc. (WGO) in Forest City, Iowa, operates in six segments – Grand Design Towables; Winnebago towables; Winnebago motorhomes; Newmar motorhomes; Chris-Craft Marine; and specialized Winnebago vehicles. Demand for motorhomes increased dramatically amid the COVID-19 pandemic as people sought alternative travel options with less risk of contracting the virus. CEO of WGO Michael Happe said in an interview that the pandemic has accelerated WGO’s growth trajectory because the company has been able to optimize retail prices in a way it hasn’t been able to do for a long time.
For its first quarter of fiscal 2022, ended November 27, 2021, WGO’s revenue grew 45.7% year-on-year to a record $ 1.20 billion, exceeding the FactSet consensus estimate of $ 1.03 billion. This can be attributed to organic growth of 37.5%, driven by strong consumer demand and price increases. Its gross profit was $ 229.40 million, up 67.4% from the previous year. Its net profit improved 73.5% from the same period last year to $ 99.60 million. And its adjusted EPS stood at $ 3.51, reflecting a 97.2% increase from the previous year’s quarter. And the company beat Street’s BPA estimates by 50%.
After the results were released on December 17, WGO shares gained 1.1% during the day to close Friday’s trading session at $ 68.41. WGO outperformed the larger S&P 500 index, which was down 0.6% during the day on Friday. In addition, the stock has gained 14.1% in progress since the start of the year.
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Here’s what could shape WGO’s performance in the short term:
Dividend yield lower than industry
In August, WGO increased its quarterly dividend by 50% to $ 0.18 per share. WGO Chief Financial Officer Bryan Hughes said, “This action further reflects the company’s strong financial position and the continued appeal of our portfolio of premium outdoor lifestyle brands, which leads to a high level of confidence in our future ”.
However, WGO’s 1.05% forward dividend yield is 41.4% lower than the industry average of 1.79%. In addition, the one-year contract of the company return on cost and the five-year return on cost of 0.86% and 1.51%, respectively, are significantly lower than industry averages of 1.82% and 2.16%. Its return on free cash flow of 5.71% is 2.8% below the industry average of 5.88%.
Additionally, WGO’s four-year average dividend yield of 0.99% is 46.9% lower than the industry average of 1.87%.
Low profit margins
WGO’s gross profit margin of 18.6% over the past 12 months is 48.2% lower than the industry average of 35.89%. The Company’s 4.37% last 12-month leveraged free cash flow margin is 25.6% below the industry average of 5.88%. Its 12-month rolling EBITDA margin of 12.66% is slightly below the industry average of 12.8%. In addition, the Company’s rolling 12-month CAPEX / sales of 1.49% is 40.5% lower than the industry average of 2.5%.
Consensus rating and price target indicate upside potential
Of the four Wall Street analysts who rated WGO, three rated it Buy and one rated it Hold. The 12-month median price target of $ 96.00 indicates a 40.3% upside potential from the Friday closing price of $ 68.41. Price targets range from a low of $ 85 to a high of $ 115.
POWR ratings reflect uncertainty
WGO has an overall rating of C which equates to Neutral in our property POWR odds system. POWR scores are calculated taking into account eight distinct factors, each factor being weighted to an optimal degree.
WGO has a C rating for stability and momentum. The stock’s relatively high 1.86 beta is in line with the stability rating. Additionally, WGO is currently trading below its 50-day and 200-day moving averages of $ 71.50 and $ 72.61, respectively, indicating a downtrend.
Out of 67 stocks in the F-rated Automobile and vehicle manufacturers the industry, WGO is ranked # 15.
In addition to the ratings I highlighted, check out the WGO ratings for Growth, Momentum, Sentiment, and Value here.
WGO is a leading recreational vehicle manufacturer with a substantial market share in the United States and internationally. So analysts expect the company’s revenue and profits to grow at a steady pace in the near term. However, WGO has announced plans to go carbon-free by 2050, indicating a growing shift towards electric recreational vehicles. But as the semiconductor shortage is expected to continue through 2022, lower-than-industry profit margins could decline further. Thus, we believe investors should wait until WGO’s profit margins increase before investing in the stock.
How does Winnebago Industries, Inc. (WGO) compare to its peers?
Although WGO has a C rating in our proprietary rating system, you may want to consider looking at its industry peers, Daimler AG (DDAIF), Isuzu Motors Limited (ISUZY) and Suzuki Motor Corporation (SZKMY), which have a B (Buy) rating.
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WGO shares were trading at $ 66.57 per share on Monday morning, down $ 1.84 (-2.69%). Year-to-date, WGO has gained 11.93%, compared to a 22.26% increase in the benchmark S&P 500 during the same period.
About the Author: Aditi Ganguly
Aditi is a seasoned content developer and financial writer who is passionate about helping investors understand the dos and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach to stock analysis. Following…