The RV industry has had its share of ups and downs, spurred to record heights by the COVID-10 pandemic and social distancing only to contract by 50% in its wake. Today’s takeaway is that the RV industry is returning to growth and is expected to accelerate over the next six quarters. As murky as the outlook for inflation and interest rates can be, it is generally accepted that the FOMC will start cutting rates this year or early next and reinvigorate the economy. Lower rates equate to lower payments, and lower payments will be a trigger for this and all discretionary markets.
The latest data from the RVIAA is promising. The forecasts for 2024 delivery growth were trimmed but still robust, forecasting a low-to-mid-teens growth pace accelerating to faster levels next year. Today’s opportunity is that industry leaders Thor Industries (NYSE: THO) and Winnebago’s (NYSE: WGO) stock prices have corrected to a one-year low because of the weakened outlook, setting up their markets to rebound in the 2nd half and sustain upward price momentum into 2025.
Among the critical details for investors include their respective low valuations and reliable yields. Neither can be labeled a high yield, but both are above the broad market average, trading near their lows and are reliable. These are dividend-growing companies with payout ratios below 40% and the ability to continue increasing their payouts long into the future. Balance sheet highlights include strong cash positions, low debt, and increasing equity. Both operate with less than 1.25x total leverage and have the cash flow to sustain it while paying dividends and buying back shares. Investors looking for cheap stocks to buy and hold for income could do worse.
Thor Industries Trims Guidance: Reiterates Outlook for Long-Term Growth
Thor Industries had a solid FQ3, outperforming on the top and bottom lines as the business contraction slowed. The issue for the market was the guidance, which was trimmed. Even so, the new range is sufficient to sustain operational quality and capital returns until growth returns. That is expected as soon as the first fiscal quarter of 2025, which coincides with the calendar first quarter of 2024. Operational quality is the key. The company aims to maintain margin and spending discipline rather than chase less profitable growth and risk diluting the brand.
Winnebago will report its Q3 results in early July and likely report similar strengths. The analysts have lowered their targets significantly since last quarter and set the bar low. The consensus reported by MarketBeat.com forecasts a 10% YOY contraction that is more than double the contraction posted by Thor Industries.
The Sell-Side Supports THO and WGO Stocks Prices
The analysts trimmed targets for Thor Industries after the Q3 release and will likely do the same for Winnebago, but their support is unwavering. The stocks are rated at Moderate Buy and viewed (in the case of THO) as fairly valued near the current levels. This sentiment may weigh the action and cap gains this summer, but a bearish reversal or downtrend is unlikely. Winnebago is trading well below the low end of the analyst range, suggesting it is a value even with sluggish 2024 sales and price target reductions.
The price action in these stocks is choppy but has been trending higher for two years. The volatility is driven by the interest rate outlook as much as anything else, resulting in numerous buying opportunities. Among the buyers are the institutions that hold nearly 100% of both companies. Their activity has been mixed over the last few quarters, but no red flags have been present.
Assuming the institutions don’t start shedding them, these stocks should bottom soon and begin the next rebound. The risk is the Fed. The longer the Fed waits to make the first interest rate cut, the longer the rebound will take to gain traction, and the greater the risk these stocks will move lower.
