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Bull of the Day: Winnebago Industries (WGO)

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Winnebago Industries (WGO) is a Zacks Rank #1 (Strong Buy) that is a leading producer of recreational vehicles (RVs). The stock has recently pulled back after supply chain issues brought weakness to the sector. However, recent earnings have shown the company can outperform during the challenging atmosphere.

More About WGO

The company was founded in 1958 and is headquartered in Forest City, Iowa. Winnebago employs over 5,500 people and sell its products through independent dealers in the United States, Canada and internationally.

The company is valued at $2.2 billion and pays a 1% dividend. It operates in six segments that focus on towable products, motorhomes, boats and specialty vehicles.

WGO has Zacks Style Scores of “A” in Value, Growth and Momentum. The Forward PE is just under 8, which makes it attractive to value investors.

Backlog and Supply Chain Worries

The supply chain has been a big problem for certain sectors and the RV makers are experiencing a challenging atmosphere. Both Thor Industries and Winnebago have seen record demand since the COVID pandemic begun. The main issue isn’t on the consumer side, but rather a problem of manufacturing the campers fast enough.

While the backlog continues to grow, the company is seeing rapid sell-through of inventories they provide to dealers. Winnebago credits its operational excellence, which has helped them deliver for both consumers and dealer partners efficiently and profitably.

Earnings Beat

Just last week, Winnebago reported Q4 earnings, seeing a 30% surprise to the upside. Revenues came in at $1.04B v the $936 million expected and gross margins were up 150 basis points y/y.

Motorhome deliveries came in at 2.97k v the 2.28k last year and motorhome revenue was up 49% year over year. The backlog increased to 18.2k v the 9.8k last year.

CEO Michael J. Happe had some comments on the year ahead:

"We look forward to continuing our momentum into Fiscal 2022 through a continued focus on quality, service and innovation as well as an expanded portfolio of high-quality outdoor lifestyle products that empower our customers to have extraordinary outdoor experiences as they travel, live, work and play.”

Winnebago Industries, Inc. Price and EPS Surprise

Winnebago Industries, Inc. Price and EPS Surprise
Winnebago Industries, Inc. Price and EPS Surprise

Winnebago Industries, Inc. price-eps-surprise | Winnebago Industries, Inc. Quote

Estimates Rising

The strong earnings helped analysts take numbers higher across all-time frames. For next quarter, estimates have from $2.04 to $2.40 over the last 7 days, a hike of 18%. For the current year, we see a 10% jump in estimates for that same time frame.

A couple analysts have also raised price targets since earnings:

BMO Capital has WGO at an Outperform, raising its target from $100 to $115.

Wedbush has an Outperform rating and a $94 target.

The Technical Take

The stock has been weak since earnings. This has been a theme in the industry as Thor Industries also saw a strong quarter, but then sold off. The bears point to the supply chain, but technically the stock is still in a long-term trend higher.

While WGO is below all moving averages, it is basically flat on the year. The MA’s will be resistance going forward, but if the bulls can get the stock above those levels, we could see the recent trend turn positive. Look for the $73 level to be the short-term bull/bear line in the sand.

If the stock were to trade lower on market weakness, look for the $60-62 area as support. This zone held up over the summer and is the 61.8% Fibonacci retracement buy zone, which can be found by drawing November lows to March highs.

In Summary

Travel might have been changed permanently by the pandemic as more consumers came to market for RVs. While the current situation surrounding the backlog and supply chain makes the business challenging, Winnebago continues to beat expectations.

Investors should monitor this supply chain risk, but also view any dip in the stock as a long-term opportunity as the backlog gets sorted out in 2022.

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