Winnebago (NYSE:WGO) Is A Buy Ahead Of Earnings

Outdoor Trends Support Long-Term Gains For Winnebago

The COVID-19 pandemic unleashed many trends in the business world, some will last and some will not. Among those that will last and last a long, long time is the shift to outdoor recreation. You can call it social distancing if you want but outdoor recreation is part and parcel to the American experience. The shift to social distancing will pass for some industries but has only reinvigorated the love of outdoor recreation shared by so many American’s. And that’s is core to why Winnebago (NYSE:WGO) is a buy before it reports earnings on 12/18/2020.

The Analysts Like Winnebago

I don’t like to use the analyst’s consensus as a reason to buy or sell a stock but I do like to keep up with what they think and trends within the community. Like everything else in the market, trading the analyst’s opinions is more about the trajectory of change than anything else. If the trajectory of analysts’ sentiment is positive it tends to lead the market higher. And the trajectory of analyst opinion concerning Winnebago is positive. Over the last 90 days, the average rating has moved up from a soft buy to a firm buy with 90% of the community bullish.

No one has gotten “very bullish” yet but that is a matter of time I think. The latest call came out from Wedbush early in December and is the only one in the last 7 weeks. Wedbush initiated coverage at Outperform with a price target of $67. That’s an 8% upside from recent price action and a conservative estimate in my opinion. The consensus of all analysts is closer to $68 while the top four targets imply a $75 to $80 price range or 30% upside.

Analyst James Hardiman wrote "In our view, the RV industry sits at the cross-section of long-term secular tailwinds and short-term Covid-driven benefits … The Covid-driven sell-off in WGO shares early in the year proved to be short-lived, as a complete shutdown in the supply chain quickly gave way to an unprecedented surge in demand... And while above-consensus earnings results could provide modest upside to the stock, the real prize lies in retail trends …”

The Competition Is Smoking The Estimates

Winnebago is well-positioned within a market that is growing by leaps and bounds. Its closest competitor is Thor Industries (NYSE:THO) and that company reported a near-18% increase in YOY revenue in the calendar 3rd quarter. The quarterly revenue not only beat the consensus by 575 basis points but it also accelerated 1000 basis points from the previous quarter. The RVIA is projecting a low-20% increase in RV deliveries for 2021 and Thor Industries execs think that figure is low. They report a 194.5% backlog in orders that includes strong gains in all segments, more than enough to keep the company busy for many quarters. And that doesn’t include restocking already low and falling inventory.

And don’t forget, Winnebago is paying a very safe dividend and one with a robust outlook for dividend growth. At current price levels and payouts, the stock is only yielding about 0.75% but there are so many other positives that the low yield doesn’t matter. Not only is the company on track for robust, sustained growth, but the payout ratio is only 10% of the consensus EPS estimate. Couple that with only modest debt, high cash, low leverage, decent coverage of obligations, an increasing FCF, and the 37.5% distribution CAGR the odds are high future increases will be substantial. Or there could be a special dividend.

The Technical Outlook: Buy, Buy, Buy

Shares of WGO are already moving higher and are likely to pop following the release of earnings. The short-interest is running above 8.0% and will be kerosene on the fire of bullish information. Looking at the charts, there is a chance for resistance at the $63.75 level but I suspect we could see a price action gap above that level if it doesn’t surpass it before the report is released. Longer-term, this stock is trading at a ridiculously-low 13X its too-low consensus and offering a deep value. I will not be surprised when this stock sets a new all-time high sometime in early 2021.