Ride In Style With Winnebago's Triple-Digit Backlog Increase
Shares of WGO are pulling back following a better than expected earnings report and presenting an opportune time to buy into this post-pandemic growth story.
Winnebago Is A High-Quality Brand And It Shows
If you are looking for a high-quality brand with a super safe dividend to ride out the trends in the outdoor recreation market Winnebago (NYSE: WGO)is a great choice. The company just released a blowout report, issued a favorable outlook, and sent shares down more than 5.0% to trade at what we think are attractive levels. The only negative in the Winnebago story is the dividend which we think could be larger. Regardless, the stock offers a deep discount to the broad market relative to its earnings, growth, and cash flow making it an attractive buy on more than one level.
Winnebago Smashes Earnings, Shares Fall
Winnebago is suffering a condition afflicting so many of the pandemic recovery stories of late. The company produced a stellar report, widened its margins, beat bottom-line consensus, gave a favorable outlook, and yet it wasn't enough to keep the market happy. These companies have been producing results for the last year and will continue to do so for the next year or two at least so these pullbacks in price action are best viewed as buying opportunities.
Winnebago's fiscal 2nd quarter ended February 27th, 2021 so may as well count as the first of the calendar Q1 reports. It is also the last of the major RV dealers to report for the holiday period and good foreshadowing of what's to come from them when they next report. The $839.9 million in revenue is up 34.0% from last year on strong demand in both segments. The revenue beat consensus estimates by 520 basis points on a 55% increase in towables and 17% increase in motorhome sales but that is not even the best news.
The best news is that margins widened by 590 basis points on mix, cost-leveraging, and cost-saving efforts to deliver solid numbers on the bottom line. The $2.04 in GAAP earnings beat the consensus by $0.57 and the adjusted EPS of $2.12 beat by $0.70. The GAAP earnings, notable, grew 200% from last year.
The company did not give any formal guidance but it didn't need to. All we need to know is that management is working to meet demand in a responsible way and we think they are. The company's backlog is up 300% for towables and 424% for motorhomes so there is a demand to be met.
"While we are pleased with the exceptional financial and operating results delivered for the second quarter, we are also optimistic about the positive retail and wholesale conditions for the rest of our fiscal year … Strong retail demand, low field inventory, and record committed dealer orders set the table for continued robust performance, but it should be especially noted we also believe there is secular and ongoing growth in outdoor lifestyle products as consumer priorities have changed due to the pandemic.
The Winnebago Dividend Is Safe
The Winnebago dividend is as safe as they come with an 8% payout ratio, strong balance, ample free cash flow, and rising earnings. The only thing we can find fault with is the meader 0.60% yield but that could change any time. The company has some history of distribution increases, a positive outlook for an increase this year, and plenty of available cash-flows to make it happen.
The Technical Outlook: Winnebago Corrects To Support
Shares of Winnebago fell more than 7.0% following the news implying the market was expecting these results even if the analysts weren't. The decline has price action below a potentially key point of support and trading within a potentially strong zone of support. If price action can not find a bottom in the range of $63.50 to $73.50 it could fall much further but we don't see that in the cards. At worst, we expect to see WGO trend sideways within the support range until data, outlook, or earnings results juice sentiment and drive the stock up to a new high.
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