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Bull of the Day: Winnebago Industries, Inc. (WGO)

Winnebago is coming off two impressive years of growth and its outlook for FY22 remains strong as consumers continue to spend big on RVs, boats, and more...

This story originally appeared on Zacks

Winnebago Industries, Inc. WGO soundly beat our first quarter fiscal 2022 earnings and revenue estimates on December 17, with both its top and bottom lines up huge compared to a year ago. The recreational vehicle maker is coming off two impressive years of growth and its outlook for FY22 remains strong as consumers continue to spend big on RVs, boats, and more.

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Cruising the Roads & Making Waves

Winnebago is an iconic American company and a leading outdoor lifestyle product manufacturer. WGO builds motorhomes, travel trailers, fifth wheel products, and boats under multiple brands, including its namesake, Chris-Craft, Grand Design, Newmar, and Barletta. The company completed its acquisition of the industry’s fastest-growing, premium pontoon boat manufacture Barletta at the end of August—it bought Chris-Craft boats in 2018.

Winnebago’s business is somewhat cyclical given the nature of its high price points, as big-ticket items go out of style quickly in times of economic distress and uncertainty. With this in mind, it last posted big YoY sales declines back in 2008 and 2009. Since then, Winnebago is in the midst of a largely unstoppable run of big top-line expansion.

Winnebago posted strong double-digit sales growth in nine out of the past 12 years, with only two small dips of -1.5% in FY19 and -0.1% in FY16. The company posted 19% revenue growth in FY20. WGO then posted 54% expansion in fiscal 2021 (period ended August 28) to help its adjusted earnings skyrocket 230%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Recent Results & Outlook

Winnebago benefitted over the last year-plus from the soaring stock market that saw people flush with cash, coupled with a desire to spend more time outdoors and away from crowded places. WGO posted 46% Q1 FY22 revenue growth on Dec. 17, alongside record first quarter gross margin of 19.8%%, up 2.5% from the year-ago quarter. This helped WGO post 97% adjusted earnings growth to blow away our EPS estimate by 53%.

Getting a bit more specific, WGO’s towable segment climbed 43% to account for just over half (54%) of total sales. Meanwhile, Winnebago’s motorhome unit popped 31% to make up roughly 35% of sales. The company also broke out its relatively new and recently beefed-up marine unit for the first time. It accounted for by far the smallest amount of total revenue, but it has plenty of runway left.

Winnebago’s share of the RV market also grew last quarter and WGO executives continued their bullish sentiment on the back of its ability to capitalize on the “secular demand shift of consumers embracing the outdoor lifestyle.” The most recent Zacks estimates call for Winnebago’s adjusted Q2 earnings to surge 43% on 31% higher revenue.

Longer-term, Winnebago’s fiscal 2022 earnings are projected to soar 44%. This looks far more impressive when taking into account the fact that its FY21 EPS skyrocketed 230%. Meanwhile, its revenue is expected to climb another 26% from $3.63 billion to $4.56 billion—up from just $2.36 billion in FY20.

Zacks Investment ResearchImage Source: Zacks Investment Research

Other Key Fundamentals

Winnebago has crushed our EPS estimates by an average of 40% in the last four quarters. Plus, its EPS outlook is greatly improved since its Q1 report, as analysts raced to lift their outlooks.

WGO’s current FY22 consensus earnings estimate has jumped 31% higher from $9.40 to $12.30 per share in the last seven days alone. Meanwhile, its FY23 EPS consensus popped 11%. This is part of a steadily improving longer-term earnings picture. And all of the recent post-release EPS positivity helps WGO land a Zacks Rank #1 (Strong Buy) right now.

Winnebago earns “A” grades for Value and Momentum in our Style Scores system at the moment. WGO executives also raised its stock buyback program in 2021 and lifted its dividend. Its current $0.18 per share dividend is 50% higher than its payout a year ago and will be payable on January 26 to stockholders of record as of January 12. WGO’s dividend currently yields 1%.

Investors should also know that its Building Products - Mobile Homes and RV Builders space is in the top 1% of over 250 Zacks industries. WGO has easily outperformed its peers and the S&P 500 over the last 10 years, up 830% vs. its industry’s 430% and the benchmark’s 300%. More recently, Winnebago stock has surged 220% in the past three years compared to the S&P 500’s 105% and its industry’s 180%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Bottom Line

Luckily for people who missed out on its big run, Winnebago stock has cooled off in the past year, up only 9% vs. its industry’s 29%. At around $71.50 a share, WGO trades roughly 17% below its records. Better yet, Winnebago’s current Zacks consensus price target represents 22% upside to its levels on Thursday, Dec. 23.

WGO has bounced around alongside the market over the last month. Yet, the stock looks to be regaining some momentum, up nearly 10% since December 20. Winnebago has plenty of near-term upside given that it still hovers right around neutral RSI levels at the moment. And it’s on the cusp of breaking above both its 50-day and 200-day moving averages.

The downturn has recalibrated WGO’s valuation. Winnebago trades at a 50% discount to its own year-long highs and 30% under its industry at 7.4X forward 12-month earnings. And unlike much of the market, Winnebago is trading well below where it was five and ten years ago, which helps make WGO even more enticing.

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