Winnebago (NYSE: WGO) Pulls Back After Earnings, Buy Buy Buy

Winnebago, Loving The Van Life

Winnebago (NYSE: WGO) reported earnings this morning and blew away the consensus. The analysts were expecting a loss of -$0.45 and grossly underestimated this company’s strength. The actual -$0.26 comes on the back of a stunning revenue beat, about 2000 basis points worth, that points to further strength later in the year. I can’t say I am surprised though, I know what it is the analysts failed to consider. It was #Vanlife.

If you didn’t know, #Vanlife is a growing trend globally and Winnebago is cashing in on it. People are rigging cars, trucks, SUVs, vans, and busses for recreational purposes. What makes this story exciting for me is I have ties to the #Vanlife. I don’t own a van myself but one friend owns Blue Ridge Adventure Vehicles and another 828CamperVanRental.com and I've helped both with their web content. And both have been doing steadily increasing business over the past few years.

Based on traffic and click-through results at 828CamperVanRental.com it looks like interest in vans and campers has only increased post-pandemic. And why not? The #Vanlife is the perfect way to socially distance while doing just about whatever you want, wherever you want. Notably, within the Winnebago report, management mentions market share gains due to the flood of consumers turning to outdoors.

“We have grown market share, strengthened dealer and supplier relationships, and maintained key investments in initiatives critical to our future. Our portfolio of premium outdoor brands continues to perform well and be desired by channel partners and end consumers alike.  Winnebago Industries’ North American RV retail market share was 11.7% on a trailing three-month basis through April 2020, up 1.7 share points (up 1.2 share points on an organic basis) over the same period last year.” Michael Happe, President, and CEO

The Outlook Is Good

The outlook for Winnebago is good. It was good before today’s results so you can be sure the analysts will begin raising their targets very soon. EPS is likely to come in negative for the full year due to the impact of the COVID-19 pandemic. The fiscal third-quarter (today’s release) will be the worst hit because it spanned the entirety of the shutdown. Looking beyond that, revenue will grow in 2020 and both EPS and revenue will grow in 2021.

“As we look ahead to the final quarter of Fiscal 2020, we are optimistic about the slope of our Company’s and industry’s recovery path due to the strong demand rebound we witnessed in May and the positive trends we are seeing continue this summer. Retail and wholesale demand for outdoor recreation products are both recovering and headed in a strong upward direction as the COVID-19 pandemic has impacted travelers’ views toward how they desire to spend their leisure time experiencing nature and the outdoors.”

The analysts are generally bullish on this stock but, funny thing, the consensus price target is about 10% below current price levels. What this means to me is one is of two things, either the analysts are wrong and about to begin upgrading their targets or Winnebago is trading well above its fair value. I don’t think it’s trading above fair value at only 20X next year's earnings, not considering the outlook for this company is noticeably brighter than it was just yesterday.

Don’t Forget, There’s A Dividend

If Winnebago’s results and outlook aren’t enough to get you interested there is a dividend to sweeten the pot. It’s not much, about 0.80%, but it’s very healthy and comes with an expectation of growth. Winnebago doesn’t qualify as a dividend-growth stock because it has had some ups and downs in the payment including a few years with no distribution. That said, the company has been increasing the payout over the past few years and at an aggressive rate.

The five-year CAGR is running above 35% and backed up by two things. First, the payout is ratio is very, very low at 23.0% and second, the company is sitting on a strong and growing cash position. The company’s operating cash flow is up 98% YOY and contributing to a growing cash balance. There is little debt to worry about so no reason for Winnebago not to up the payment.

The Technical Outlook: Bullish, Pulling Back, It’s Time To Buy

The technical outlook for this stock is bullish; price action recovered all of the COVID-Correction, set a new high, and setting up for the next rally. Today’s news has the stock pulling back from the high but well above the previous resistance level where support is expected to be strong. The indicators are slightly bearish but show a strong, steady uptrend leading into today’s pullback so I don’t see any reason to fear a price reversal. If anything, today’s action will be met by buyers so don’t pin your hopes to a deep pullback. At best, I think price action could move down to the $65 level before bouncing. Basically, this is a dip you should be buying.