The RV industry has experienced a dramatic drop-off since the record sales experienced during the Covid pandemic. Winnebago (NYSE:WGO), a leading force in the industry, has released its recent Q3 earnings and displayed a rougher road to recovery than initially anticipated. Challenges will likely persist in the near term, yet Winnebago should be among the first Original Equipment Manufacturers (OEMs) to navigate its way from the current RV slump.
However, there is still no clear sign of an end to the RV recession, and aging FY23/FY24 inventory raises the risk to the company’s business for the rest of 2024 and into 2025. While this is a high-quality long-term investment, it may be wise for investors to wait until signs of industry recovery become evident before making a move.
Winnebago Looking for Light at the End of the Tunnel
Winnebago Industries is a leading manufacturer of outdoor lifestyle products, boasting brands such as Winnebago, Grand Design, Chris-Craft, Newmar, and Barletta. These brands specialize in products predominantly for leisure travel and outdoor activities,.
However, there are ongoing challenges for the business. Elevated interest rates have negatively impacted consumers’ buying behavior, as indicated by 80% of RV owners financing their purchases. This rise in rates has resulted in decreased buyer interest. Meanwhile, dealers are grappling with unsold, outdated RV models on their lots, even as they have to make room for the newer, less expensive 2025 models.
Despite these problems, projections for the recreational vehicle market remain positive. The market, valued at $33.23 billion in 2024, is expected to experience significant growth, reaching $49.18 billion by 2029, growing at a CAGR of 8.15%.
Winnebago’s Recent Financial Results
The company recently posted its results for the third quarter of 2024, which showed that it has underperformed compared to market expectations. Reported revenue of $786.0 million missed consensus projections of $799.85 million and marked a 12.7% year-over-year decrease from $900.8 million. This reduction is mainly due to a change in product mix and lower volume due to market conditions.
Gross profit has also declined by 22.0%, with a reported $118.2 million, compared to $151.4 million in the previous year’s third quarter. This dip in profit margin can be attributed to operational efficiency challenges and higher warranty expenses. The company’s earnings per share (EPS) stood at $1.13, falling short of the anticipated $1.31.
Winnebago’s balance sheet at quarter-end showed cash and cash equivalents of $318.1 million and a total outstanding debt of $695.4 million. Winnebago’s Board of Directors approved a quarterly cash dividend of $0.31 per share, payable on June 26, 2024, to common stockholders of record at the close of business on June 12, 2024. The company has also executed share repurchases of $20 million during the third quarter.
What Is the Price Target for WGO Stock?
Analysts following the company have taken a cautiously optimistic stance on the stock. For example, BMO Capital analyst Tristan M. Thomas-Martin recently lowered the price target on the shares from $80 to $75, but kept an Outperform rating. He noted the company’s near-term challenges while highlighting that mid-cycle targets may provide an anchor for longer-term investors, and new products could provide incremental upside.
Overall, Winnebago Industries is rated a Moderate Buy based on the recommendations and price targets issued by seven analysts over the past three months. The average price target for WGO stock is $68.60, representing a potential upside of 32.20% from current levels.
The stock has been a bit volatile, with a beta of 1.5, and has been trending downward since its peak in 2021. It has declined over 24% year-to-date and currently sits at the low end of its 52-week price range of $53.13 – $74.35. It shows negative price momentum, trading below the 20-day (57.64) and 50-day (60.40) moving averages. With a P/S ratio of 0.58x, it appears slightly undervalued to industry peers, with a Recreational Vehicle industry P/S ratio average of 0.66x.
Bottom Line on WGO
Winnebago is a leader in the RV industry. While it has faced significant challenges in the face of the ongoing RV industry slump, the company is better positioned than most to rebound once the industry starts to recover. Winnebago’s diversified portfolio of brands and projected market growth in the coming years strengthen this outlook.
Nevertheless, investors are advised to take a cautionary stance due to a stale inventory set to burden the company into the latter half of 2024 and 2025 and no clear sign of the RV recession ending. Yet the stock will be an attractive option once more evident signs of market recovery emerge.
