REV Group, Inc Pulls Back Into A Buying Opportunity REV Group (NYSE: REVG) stock popped earlier this year on rising demand for its products across all lines. The demand led the company to raise guidance, outperform expectations, resume the...

REV Group Slips On Supply Chain Issues

REV Group (NYSE: REVG) stock popped earlier this year on rising demand for its products across all lines. The demand led the company to raise guidance, outperform expectations, resume the dividend, and send shares to the highest levels in three years. Now, two quarters later, shares are trading at the lowest levels in months and offering up a very attractive buying opportunity.

The reason for the pullback is simple, the company's efforts to grow are being hindered by supply chain issues but a simple fact remains. While current revenues are being impacted by supply chain issues there is still strong demand for products, the backlog has grown to record levels, and EBITDA growth is present even if revenue growth isn't. In our view, this has the company set up well for next year when we expect supply chain log-jams to ease, revenue growth to resume, and earnings leverage to drive shareholder value.

REV Group, Inc Slows For Second Quarter

REV Group, Inc had a good quarter despite the supply chain issues but there is a serious near-term headwind to be aware of. The $589.9 million in consolidated revenue is down sequentially for the second quarter in a row and still well below the pre-COVID levels and missed the Marketbeat.com analysts consensus by 190 basis points.

On a segment basis, weakness in the Fire & Emergency segment was offset by strength in Recreation and Commercial but results in all segments could have been stronger. The F&E segment saw revenue shrink by 15.9% with specific reference to supply chain hold-ups as well as the impact of Hurricane Ida. The Recreation segment grew by an industry-lagging 12.2% while the Commercial segment grew by an equally tepid 3.8%. In all cases, the backlogs grew by at least 50% with Recreation backlogs up more than 130%. In all cases, backlogs are at record levels.

Moving down the report the company's adjusted EBITDA margin rose more than 1000 basis points but not enough to fully offset the revenue weakness. On the bottom line, the adjusted $0.27 missed the Marketbeat.com consensus estimate by $0.02 and the GAAP miss was even larger. On a GAAP basis, the company's $0.00 in earnings fell short of expectations by $0.24 but there are some mitigating factors including the exit of a Chinese-based JV and restructuring costs.

REV Group Gives Weak Guidance For F2022

REV Group provided positive guidance but it was weak guidance in relation to the analyst's estimates and in light of the record backlog. The company is expecting both revenue and earnings in a range with the consensus estimate in the upper half for full-year 2022. In our view, the guidance is cautious and leaves the door open to outperformance assuming supply chains catch up and production/deliveries are ramped.

The Technical Outlook: REV Group Pulls Back To Support

Shares of REV Group are down more than 5.0% in pre-market trading and may head lower in the near term at least. The caveat is that a very strong support level is present just below the price action and we expect it to stop the decline if not produce a bounce in prices. Confirmation of support at this level would also confirm a reversal pattern on the weekly chart that we see leading to much higher prices. The most basic projection, the magnitude of the reversal pattern projected from the break-out point, puts the stock up near $24 and above the current Marketbeat.com analysts high price target of $22.