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Thor Industries Inc. (THO): Zacks Rank Buy

Tracey Ryniec

How do we know the economy is improving? RV sales are up. Thor Industries, Inc. (THO) is expected to grow earnings by the double digits in fiscal 2012. Shares have been on a tear in 2012 but this Zacks #1 Rank (Strong Buy) still has some value with a price-to-book ratio of just 2.4.

Thor is the largest manufacturer of recreational vehicles in the United States. It makes both motor homes and towables including the well-known Airstream.

The company also makes commercial buses and ambulances.

Second Quarter Sales Jump 13%

On Mar 8, Thor reported its fiscal second quarter results and saw earnings rise 150% to 25 cents from 10 cents a year ago.

However, the analysts got a little too optimistic after the preliminary sales results were announced in February, as the company missed on the Zacks Consensus by 2 cents.

Sales jumped 13% to $596.9 million from $526.2 million a year ago.

RV sales, the largest segment, rose 15% to $500.9 million from $437.1 million a year ago. Towable RV sales are proving to be more popular, with sales up 22% to $444.2 million. Motorized RV sales went the other way, falling 21% to $56.8 million. Bus sales also rose, gaining 8% to $96 million.

In February, the company said the backlog actually fell to $647 million as of Jan 31, 2012 from $689 million a year ago due to a fall in the RV backlog.

Outlook for Fiscal 2012

The second quarter has historically been the most difficult for the company (on a seasonal basis.) Fewer people want to buy an RV during the winter, apparently.

However, the company still saw 'strong retail activity' over the first two months of 2012. The Recreation Vehicle Industry Association is seeing better sales on the horizon as it recently revised its 2012 wholesale RV shipments higher to a 5% improvement over 2011.

One fly in the ointment, however, could be rising fuel prices. The higher gas prices go, the less likely consumers are to buy an RV.

Zacks Consensus Estimate For 2012 Moves Higher

Despite the danger from rising gasoline prices, the analysts are still bullish about fiscal 2012.

3 out of 5 estimates have moved higher for 2012 in the last 30 days. The fiscal 2012 Zacks Consensus Estimate has also risen to $2.27 from $2.17 in the last 60 days.

That is earnings growth of 26% compared to fiscal 2011 where the company made just $1.81.

This is a big turnaround from the height of the recession, in 2009, where the company made just 41 cents.

Still a Value Stock

Shares have soared in 2012 and are approaching a 2 year high.

But Thor continues to be a value stock, even if it's not as cheap as a few months ago.

In addition to its low P/B ratio, it also has a forward P/E of 14.9. That is just under the cut-off of 15x that I use to find value stocks.

So the P/E might not be extraordinarily low but looking at a third value metric, the price-to-sales ratio, you can see the value more clearly.

Thor's P/S ratio is 0.6. A P/S under 1.0 usually indicates a company is undervalued.

Growth in RV sales is a sign that the US economy is turning it around. Thor is cashing in with double digit earnings growth yet still has attractive value fundamentals.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her at twitter.com/traceyryniec.

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