The Rebound In Winnabego Is On

Winnebago Is A Comfortable Way To Ride Out The Recession 

Whether you believe a recession is coming is irrelevant, at least in the case of Winnebago (NYSE: WGO). The company’s branding, quality, and industry trends have it on a path of outperformance that could easily last into the end of 2023. The company’s FQ3 results were not just strong but so far above the analyst's consensus figures, that it makes us wonder if they were paying attention. We know the analysts are paying attention, BTW, because the RV industry has been one of the most closely watched since the pandemic began. Unlike other pandemic winners, however, the trends unleashed by COVID-19 are not dependent on it so much as on human nature. People like to be outdoors and an RV is one heckuva way to do it with style. 

And for Winnabego and the analysts? The 10 analysts rating the stock have it pegged at a Moderate Buy with a price target more than 65% above the most recent price action. The Marketbeat.com consensus rating has been firm over the last 12 months while the price target peaked and moderated. The takeaway is the price target is steady versus last year and the Q3 results suggest to us it may begin moving higher again. The very least we expect to see is a series of reiterated ratings confirming the long-term outlook. That outlook? For elevated business over the next few quarters, industry normalization, and sustained cash returns for shareholders. 

Winnebago Levers Demand For Another Quarter Of Outperformance 

Winnebago had a stellar quarter in which record revenues of $1.46 billion were logged. This figure includes nearly 900 basis points of acquisitional growth, however, but the organic 41% of YOY improvement is just as good. The revenue also beat the consensus by more than 2,050 basis points and we expect to see this level of business or greater in Q4. On a segment basis, the Motorhome segment increased by 34% while Towables increased by 41%. The newly acquired Marine segment came in at 8.6% of the net. In regard to market share, the company reports market share is up 70 basis points year-to-date to 13.2%. 

Moving on to the margin, the gross margin improved by 100 basis points to 60.9% on the combination of sales leverage, pricing, and product mix offset by labor and input costs. At the operating end, the margin improved by 150 basis points to 12.1% of sales which helped to drive robust gains on the bottom line. On the bottom line, revenue and margin strength resulted in adjusted EPS of $4.13 which not only rose 84% from last year but beat the consensus by $0.17. 

The company did not give any formal guidance but the outlook remains strong. The backlog fell on a YOY basis but a slim 2.7% to $3.6 billion which is worth nearly 2.5 quarters of business at the current pace. While we see a peak in the RV business, we think normalization will leave the industry well above the pre-COVID levels and Winnabego with an elevated market share. 

Deep Value Winnabego Moves Higher On Earnings Strength

Winnebago is a deep value trading at only 3.75% of its earnings outlook and it is returning capital to shareholders. The stock yields a very safe 1.55% trading near $46 and there is a positive outlook for growth. The payout is only 5% of the earnings consensus, less than 5% of the actual results, there is a history of increases, and the balance sheet is net cash. The company has also been using the cash flow to buy back shares and repurchased a record $70 million during Q3. That is worth 4.7% of the pre-release market cap and we expect to see this activity continue in Q4 if not beyond. 

Turning to the chart, price action in Winnebago is up about 5.0% in premarket action and it may rocket higher after the open. Not only is the stock showing a technical bottom but it is also carrying a very high 20% short interest. In this scenario, we see a short-covering rally underway with the possibility of a squeeze. Longer-term, we expect to see Winnebago trading in the range of $60 to $70.