Thor Industries Is Driving Higher on Strong Earnings

 | Jun 06, 2017 | 11:47 AM EDT
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After the close, RV manufacturer Thor Industries (THO)  ran 12% higher when the company reported record third-quarter results -- and it is still rising in today's trading. Will this stock ever go on vacation?

In the 12-month period ending Jun. 5, shares of Thor Industries are up 47%. The recreational vehicle (RV) market is being driven by consumer demand for affordable-priced travel trailers and motor homes.

Thor reported third-quarter earnings of $2.11 per share, $0.25 better than the consensus estimate. Revenue rose 56.9% to $2.02 billion versus the $1.96 billion analyst estimate. The results include the acquisition of Jayco, which closed on Jun. 30.

Thor reports in two operating segments: Towable RVs and Motorized. Towable RV sales were $1.43 billion, up 52.6% to $934.6 million. Jayco contributed $362.9 million to towable sales in the quarter. Excluding the Jayco acquisition, towable sales grew 13.8% due to strong demand for affordable trailers. Towable backlog increased 115.1% to $1.56 billion, reflecting the inclusion of $445.9 million of backlog from the Jayco deal. 

Motorized sales were $549.9 million, up 78.7%. The results include Jayco's sales of $153.7 million. Motorized backlog increased 141.6% to $$795.5 million.

As a result of the Jayco acquisition, gross margins decreased to 14.6%, compared to 15.7% in the prior year. Jayco's products carry lower margins, which compressed the company's total results. Gross margins peaked in fiscal 2016 at 15.9% and three quarters into fiscal 2017, they are down 190 basis points.

According to the Outdoor Industry Association, an estimated $887 billion was spent on the "outdoor economy" in 2016. Approximately 37.1 million North American households camp at least once a year and 22% of them are RV enthusiasts. 

Thor believes the industry is very healthy. Overall dealer inventory levels remain healthy and total days in inventory are stable. Used inventory remains low, which is helping to support trade-in sales. In terms of financing, current delinquencies are approximately 1% versus the recession peak of 1.5%.

According to the RV Industry Association, through March, the industry had 83,429 vehicle registrations, up 11.1% from last year's 10.1% unit registrations.

In the five years ending fiscal 2016, Thor was able to report a consolidated annualized revenue growth rate of 14.4% and a 23% increase in net income. Over that period, diluted earnings per share jumped 24.2%. 

Thor is a leader in the RV market. In fact, the company cites a 47.8% share of the recreational vehicle market. 

Looking forward, analysts see fiscal 2018 revenue of $7.4 billion, up 6.7%, and earnings of $7.25 per share. At the current quote, around $104, the stock is trading at 14x forward estimates. Historically, the shares trade between 13x and 16x estimates, so I don't see any reason why the stock can't trade up to $115 per share, especially if the sales stay strong and the company is able to get margins higher.

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