High-Yield Deep-Value LCI Industries Exceeds All Expectations

LCI Industries Is A Steal At These Prices 

We expected LCI Industries NYSE: LCII to do well in Q1 and outperform the Marketbeat.com consensus estimate but even we were surprised by just how strong the results were. The company was able to overcome numerous challenges including rising prices and supply chain hurdles to produce the strongest results on record. The strength is driven by record demand from OEM RV manufacturers that has led not only to sales gains but to market share gains as well. If you are looking for a one-stock-to-rule-them-all investment for the RV industry this one could be it. The company’s products represent 40% of the content of North American OEM campers and trailers and that figure could easily grow. The real takeaway is that this stock is outperforming at all levels and still trades at the deep discount of 7X its earnings while paying out a very safe 3.3% in yield. 

LCI Industries Blows Past The Consensus 

LCI Industries didn’t just beat the consensus it absolutely smashed the figures and will lead the analysts to upgrade their targets. Until then, the $.164 billion in revenue is up 64% from last year and beat the consensus by 1700 basis points. The sales were driven by strength in all three operating segments with a notable 90% increase in OEM RV sales. That put OEM RV sales at 61% of the revenue and both the Adjacent OEM and Aftermarket RV segments grew by double-digits as well. The Adjacent OEM segment, which includes Marine, grew by 42% with a 49% increase in Marine sales. The Aftermarket RV segment, which is supported by a healthy DIY movement, grew by 35% on top of last year’s double-digit gains. 

As good as the sales figures are, the margin news is even better. The company was able to widen both the gross and operating margin by wide margins due to price realization and cost leverage related to the sales increase. At the gross level, the margin widened by 405 basis points while at the operating level margin widened by 625 basis points. These gains left the GAAP earnings well above the consensus as well, with the $7.71 in EPS up 165% from last year and $2.47 better than expected.

The company did not give any guidance and we are expecting a slow down in the industry as inventories are caught up but the outlook is still very positive. Even if sales slow down to the analyst consensus the company is still on track to smoke the FY Marketbeat.com consensus figures and we are not expecting business to slow that dramatically or very quickly. In our view, there are still another 2 or 3 quarters to go before the RV OEMs get inventory levels at the dealerships caught up which means the remainder of F22 should provide robust business for this company. 

LCI Industries Has Comfortable Capital Return Program 

LCI Industries pays a very healthy dividend that yields over 3.3% with shares trading at $111.50. The payout is less than 30% of the earnings consensus as well, and the consensus is far too low to boot. The balance sheet doesn’t provide any red flags either, with long-term debt steady YOY, short-term debt at zero, and recent acquisitions largely self-funded. The takeaway is that we are expecting to see the company continue raising the distribution annually for many years to come, and at a 10% to 15% CAGR as well. 

Turning to the chart, the stock is moving up in the wake of the report and confirming support at the $100 level. The indicators are consistent with support at this level and a rebound in prices so we are expecting to see the move continue higher. The next target for resistance is at the $116 level, if that can be overcome we see this stock moving back up to the all-time highs near $160.