REV Group's (NYSE: REVG) stock price rose more than 200% in 12 months because of business strength, cash flow, and balance sheet health, and it can continue to set new highs. The guidance for Q3 is tepid, leading to a significant pullback in share prices, but the move revealed robust support aligning with the uptrend. It may take time for the market to regain footing and resume its advance, but the odds are high it will. Tepid or not, REVGroup will continue to drive value for shareholders. 

The company restructured earlier this year, aiding the outlook for earnings and the trajectory for share prices. Exiting the school bus and winding down the commercial bus operations reduced operating costs, shored up the balance sheet, and allowed the transportation company to focus on its growth opportunities. Those include robust demand for its specialty vehicles, which include fire and rescue vehicles, and a rebound in the recreational vehicle industry. 

Wholesales of recreational vehicles are pivoting to growth this year and are expected to accelerate next. The Recreational Vehicle Industry Association forecast issued in June expects sales to accelerate sequentially through the year’s end and to grow nearly 14% in 2025. The forecast is likely low, given the outlook for interest rates, which have been a headwind for the market. The FOMC is expected to cut rates by at least 50 basis points or 0.5% before the year’s end and to cut another 50 to 100 basis points next year. 

REV Group Falters on Mixed Results and Cautious Guidance 

REV Group has only four analysts issuing earnings forecasts, and only one of them revised in the 90 days leading into the report, so there is little conviction in the consensus. The mixed report isn’t as bad as it may seem. 

Although the company’s $579.4 billion in revenue fell 15% year over year and missed the consensus, the salient details are that ongoing business is good, earnings are strong and growing, and free cash flow is sustaining capital returns and balance sheet health. Ongoing business is down YoY but only 9% versus the 15% reported, with strength in the specialty segment offsetting weakness in the recreational segment.

The report's critical detail is the margin news. The company widened its margin significantly with its restructuring and grew earnings on a reported and adjusted basis. Reported earnings, including the impact of the Collins bus business, grew by 15% and nearly 50% when adjusted. Margin strength is expected to persist and has the company set up for leveraged growth when top-line growth resumes. 

The guidance is why the market fell double-digits following the news and began rebounding almost immediately. The guidance was trimmed, putting the midpoint for revenue below the consensus forecast, but expects sequential growth and margin stability. The critical detail is that the free cash flow forecast is unchanged, and YoY growth should resume on a reported basis in Q1 F2025. 

Institutional Support Is Strong for REV Group

Institutional support for REV Group is strong and will likely drive this stock back to retest its recent highs. Institutions, which own about 99% of the stock, have been buying on balance for five consecutive quarters, with activity ramping to a multiyear high in Q2. Activity remains bullish and strong in Q3 and will likely increase as share prices pull back. 

The post-release price action is suggestive. The stock fell more than 20% at the open to start trading below the 150-day EMA. Since then, the market has increased to regain half the early loss and confirm solid support at the EMA. Assuming support remains strong, this market may not reclaim the recent highs quickly, but the uptrend is intact, and new highs are likely.