The RV industry took a massive hit during the 2008 recession, but has recovered significantly since then. From the beginning of 2012 to the start of 2018, an index of the industry has jumped an astounding 460%. The industry has dropped back down over the past year and a half, but is still about 320% above recession lows.
The recreational vehicle industry is in a very interesting and complex position and is currently being influenced by many strong macroeconomic factors. The industry is extremely sensitive to the overall strength of the economy, as buying an RV is a large discretionary purchase for the majority of customers. When the economy starts to weaken, RV sales generally fall sharply, as consumers do not feel confident enough in their financial stability to justify a large recreational purchase.
The industry has started to show early signs of a slowdown, which is seen by some as an early warning sign of a recession. In June 2019, RV shipments were down 10.3% over a year earlier, according to the RV Industry Association. Total 2018 RV unit shipments were also down 4.1% from 2017.
However, many manufacturers attribute this slowdown to overbuilding after an increase in demand in 2017. The RV Industry Association expects dealer inventories to balance out by the end of the year and predicts a 2.5% rise in shipments for 2020.
It is worth noting that while RV sales have slowed,sales are still extremely strong. Last year saw the second highest RV unit shipments volume ever and the highest total retail value. But the industry is also at risk from the U.S. – China trade war. Estimates show that up to 523 RV components could be impacted by tariffs, which would significantly rise prices for manufacturers. These price increases would likely get passed onto consumers, lowering demand.
In August, concerns over the trade war and worries of a possible recession have driven down industry stock prices significantly. Our RV industry index is down 15.4% in August, with some companies such as Winnebago and Thor Industries down 20% or more.
Investors should decide whether they believe a recession is coming soon. If a recession does not seem likely in the near-term, investors may want to consider RV manufacturers because some of these stocks sit at their cheapest points in over three years. If the economy stays strong and continues to grow, RV sales will likely continue to grow and stock prices could come back up.
Thor Industries THO
Thor Industries is the largest RV manufacturer in the industry, making up almost half the market. The company is headquartered in Elkhart, Indiana and currently has a market cap of about $2.4 billion. Thor started with the acquisition of Airstream in 1980, and has been growing primarily through acquisitions ever since. Thor currently holds 17 different RV brands and brought in $8.3 billion in revenue last year.
Thor is a Zacks Ranks #3 (Hold) at the moment, as earnings estimates have not changed in the past 60 days. Our Zacks Consensus estimates show a 2.4% decrease in earnings for this quarter from a year ago. Next quarter, earnings are projected to jump 9.38% over the prior year period to $1.40 per share. For full year 2019, earnings are projected to come in at $5.24, a 38.71% decline from last year’s record performance.
Revenues are estimated to grow significantly in the near term, with current quarter growth predicted at 29.73%. Next quarter, revenue is projected to grow 37.53%.
Winnebago Industries WGO
Winnebago is an RV a manufacturer based in Forest City, Iowa. WGO was founded in 1958 and is one of the most well-known RV makers in the country. WGO’s revenue topped $2 billion last year, making up almost 10% of the RV market.
Winnebago currently holds a Zacks Ranks #3 (Hold). Yet the company’s earnings are projected to jump 20.21% this quarter and 20% next quarter. Fiscal 2019 earnings are projected to jump by 14.92% from last year to $3.62. Fiscal 2020 projections show earnings increasing by 12.98%. WGO has a forward P/E ratio of 7.84x at the moment, much lower than the industry average of 11.28x. WGO has also beat earnings estimates 9 out of the past 10 quarters, showing that growth could be even larger than predicted if the trend of earnings beats continues.
Skyline Champion Corporation SKY
Indiana-headquartered Skyline builds a variety of manufactured and modular homes, park-model RVs and modular buildings. Skyline Corporation and Champion Enterprises Holdings, LLC merged in June of 2018 and the company is now one of the largest homebuilders in America, having pulled in $1.3 billion in revenue last year.
Skyline currently holds a Zacks Ranks #1 (Strong Buy), based on strong upward earnings estimate revisions for fiscal 2019 and 2020 in the past 30 days. Estimates call for current quarter earnings to jump 39.13% . Next quarter looks similarly promising with projections of 22.22% growth. The company’s full-year earnings are projected to jump 25.96%, with revenue expected to climb 6.71%. For fiscal 2020, earnings are expected to increase 21.37%.
Skyline currently has a forward P/E of 19.85x, higher than the industry average. However, Skyline operates partially in the manufactured homes sector which commands higher forward P/E ratios.
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