Undervalued Winnebago Gets Even Cheaper

Winnebago Sustains Growth But Gets No Love From The Market 

Winnebago NYSE: WGO shares are moving lower in the wake of the FQ2 earnings report for one reason and one reason alone. The company’s and the industry's strength has been well forecast so many in the market, including ourselves, were expecting outperformance relative to the analyst's consensus. In that light, the strong Q2 showing and positive outlook for growth were priced into the market and provided no catalyst for price movement, and into that void stepped the short-sellers. The takeaway for us is that, with shares trading at only 5X the consensus estimate and earnings well above estimate, the stock is incredibly undervalued for what you get. What you get is a leader in its industry, a growing company with a rock-solid balance sheet, an ultra-safe dividend, and institutional support for price action. 

The institutions own more than 92% of the stock and they have been net buyers over the past 3 quarters. While institutional selling capped share prices in mid-2021 that headwind is long over. Now, with institutional activity on the upswing and the company performing so well, we will be very surprised if price action doesn’t begin to bottom and soon.

Winnebago Drives Comfortably Past The Consensus

Winnebago’s business has been supported by robust demand since the first of the pandemic. The push for social distancing unleashed a pent-up love of the outdoors that has yet to run its course. The company reported $1.16 billion in revenue for a gain of 38.7% over last year and last year sales grew by 33%. Revenue gains are aided by acquisition but, on an adjusted basis, organic revenue growth is still very strong at 29% and up 73% in the 2-year stack. Not only did the company grow its revenue, but it was also able to grow market share by 100 basis points as well. 

On a segment basis, the Towables segment led with a gain of 47.7% while Motorhomes rose by 9.1%. This is noteworthy because Motorhome sales outpaced Towables by a wide margin until this quarter. Moving down to the earnings, the company reported flat gross margin and a 3700 improvement in the operating margin that helped drive solid gains on the bottom line as well. On the bottom line, adjusted earnings of $3.14 are up 42% from last year, aided by pricing increases, and beat the consensus by $0.23. 

Winnebago didn’t give any specific guidance but the backlog data and outlook are very positive. Backlogs grew by 55% and 21.5% in the Towables and Motorhome segments with acquisitional growth on tap as well. The company’s recent purchase of Barletta has opened the door to the marine market and it is outperforming expectations so far. 

Winnebago Is A Comfortable Dividend With Growth In The Forecast 

Winnebago pays a comfortable dividend that investors can count on. The payout is worth 1.15% of share prices which is a bit on the low side but backed up with some very solid financial metrics. The payout ratio, for one, is only 5.25% of the consensus for earnings and that estimate is too low. For another, the company has been increasing the payout for the last 4 years and has the balance sheet and cash flow to continue for another 40. 

The Technical Outlook: Winnebago Falls To A New Low 

Shares of Winnebago fell more than 10% in the wake of the earnings report and may fall further. The caveat is that there are growing, sustained, divergences in the indicators that suggest the sell-off is overextending itself to extreme levels. This is being driven by a high 13.25 short interest but, at some point, the value and yield if not the earnings will renew interest in the stock and bring buyers back to the table. At that time we expect to see a quick short-covering rally, a bottom, and an eventual return to upward movement. Until then, there is a risk the price could fall to the $50 level and maybe lower.