Camping World (NYSE: CWH) rose 9% in the first week of 2023 due to valuation and yield. At the heart of the RV industry, the company should contract by 20% to 30% in 2023. Camping World stock trades at only 5x its earnings, about 6.7x versus the consensus for next year, and it pays a 10% yield. The company is growing in 2023 by acquisition, if not by any other metric.
Camping World: A Value in Every Way that Counts
Camping World is valuable relative to its peers, not just the broad market, with its P/E of 6.7x next year's consensus. The next best value in the group is Winnebago at 7.35x, but it has too much exposure to the new RV market compared to Camping World, which has exposure to both the OEM/new market and the aftermarket. Others in the group, like Thor Industries (NYSE: THO) and LCI Industries (NYSE: LCII), trade above 10x their 2023 earnings estimates and all pay a much lower dividend. Winnebago (NYSE: WGO) is the weakest payer and only yields about 1.9% with shares at 7x forward earnings, while LCI Industries is the strongest. LCI Industries pays about 4.15% with shares at 10x earnings and has robust potential for distribution growth.
However, Camping World's 10.25% dividend may be a red flag for investors because coverage appears to be limited by debt. The company's debt load has been decreasing steadily over the past years. However, coverage is still below 1.0, and the payout ratio relative to the 2023 Marketbeat.com analyst consensus figure is a little high, at 70%. In this scenario, it appears that Camping World may have to increase debt in 2023 or cut its dividend payment, which would not boost share prices.
Expansion of the business may have caused the debt, which has been very aggressive over the past few years. The latest news includes acquisitions in Alabama and California that added three new dealerships, one in Alabama and two in California. These deals should close in Q1 2023, which means they will be accretive to the top and bottom lines early in the year. Economic pressure may hurt the company on a comp-store basis, but the increasing store count sets it up for leverage when the economic rebound gets underway.
Analysts Buying Camping World
The institutional and insider activity has been iffy, but Camping World remains a very tightly held issue with 47% insider ownership and 36% institutional ownership. There is a recipe for higher share prices if overshadowed by broader economic conditions. The analysts have lowered their targets since last year, but the price targets firmed over the past two months; the sentiment improved to a "moderate buy." This has the market bottoming and set up for a reversal should the catalyst arrive.
Looking at the chart, Camping World is bouncing off a key and potentially strong support level at the bottom of a multi-year trading range. This range has been in place since the pandemic rebound began and may keep the stock moving sideways over the long term. In the near term, Camping World is moving higher within the range and may hit the $26 level soon. A move above that resistance point could lead the stock up to the $28 and then the $32 levels.
