Thor Industries (THO) is the market leader in RVs. That is good to know as right now the sale of RVs will continue trending higher over the next decade at an expected rate of 15%. This trend is supported by the aging population, RVs becoming increasingly popular, and growth in new Asian and European markets.
In recent weeks, the stock has dipped by more than 10% because it’s been lumped in with many of the other coronavirus stocks which saw a temporary surge in demand. However, the situation is different for THO as many tried RVing for the first time, and surveys showed that it’s become quite popular across all age groups.
Further, THO has an exceptional management team as evidenced by its streak of 30 years without a losing quarter and four straight quarters of beating earning and guiding higher. Despite these positives, the stock is cheap with a forward PE of 13.
In recent weeks, the stock has dipped by more than 10% despite another blowout earnings report. Now, let’s dig deeper into THO to find out what makes it so special.
THO is the market leader in RVs, so ultimately its growth prospects are tied to the outlook for this category.
The coronavirus led to a sharp increase in RV sales as it was one of the safest ways to travel, yet it’s certain that some of these adopters will become converts. At one time, traveling by RV was a purely North American endeavor, yet like so many aspects of American culture which propagate through the world, this is starting to boom in Asia and Europe.
Further, demographics are favorable as Baby Boomers ease into their retirement which should also boost the segment’s popularity especially as cruising is expected to decline due to health concerns.
This bullish outlook was confirmed by THO’s recent earnings report. The company reported a 36% increase in revenue to $2.7 billion which topped forecasts of $2.5 billion. Earnings per share came in at $2.38, while analysts were looking for $1.55.
Even more impressive, the company has a record backlog of $10.3 billion despite an increase in production. Thor’s CEO is also quite confident that the surge in demand for RVs will be “sticky” as he said on the conference call: “We think it’s just brought more people to it. I think psychologically, a lot of people are still going to be hesitant to travel and vacation in different ways once they’ve tried an RV lifestyle.”
THO is the rare stock which has delivered outstanding returns to shareholders, yet its earnings growth is even more impressive. Thus, it has a forward PE of 13, while the S&P 500 has a forward PE of 23. This type of value creates a nice cushion for shareholders in the event of market volatility. It also means that THO could see inflows from the rotation from growth stocks into value.
Wall Street analysts are also bullish on THO as 4 out of 5 analysts covering the stock have a Buy rating. Currently, the consensus price target is $147 which implies 16% upside. 5-star analyst Craig Kennison of Baird is even more bullish with a $150 price target which he reiterated after the company’s strong earnings report. Gerrick Johnson of BMO Capital has an even higher price target on the stock at $160.
THO’s strong management team is another reason to like the stock. It has a consistent track record of making acquisitions to grow the business and enter new markets. Its latest successful acquisition was Tiffin which increases its offering of high-end RVs. Another indication of its high-quality management team is that THO pays a 1.2% dividend and has hiked its payments every year since 2014. Over the last 20 years, the payout has increased from $0.02 per share to $1.61 per share.
Given THO’s above-average growth and value characteristics, it’s not surprising that the stock is rated a B by the POWR Ratings. The POWR Ratings are calculated by analyzing 118 different factors, each with its own weight. B-rated stocks have delivered an average annual return of 19.7% which compares favorably to the S&P 500’s 7.3% annual return.
The POWR Ratings also evaluates stocks by different components to give even more insight. THO has an A for Growth. This is consistent with the increasing popularity of RVs especially among the Millennial generation. As the market leader in this niche, THO will be the largest beneficiary of growth in this category.
In terms of Industry, THO is in the Auto & Vehicle Manufacturers Industry which is rated a B. The outlook for this industry is positive due to increasing optimism about the economic outlook with expectations of high single-digit GDP growth in the second half of 2021 and 2022. Further, low rates and strong household balance sheets are also supportive of consumers making large purchases.
Putting It All Together
If we take a step back, the bull case for THO is quite simple.
RVs were a growth industry prior to the coronavirus. But, during the pandemic, its popularity exploded. And it’s likely that some of the adopters will become converts.
The stock is significantly cheaper than the market average and is growing faster. In recent weeks, the price has dipped by more than 10%, creating an attractive entry point.
On top of everything, the company has an exceptional management team with a consistent track record of beating earning and issuing guidance above expectations. It’s demonstrated the ability to effectively invest capital to expand into new markets and keep delivering popular products.
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THO shares were trading at $133.37 per share on Monday afternoon, down $0.33 (-0.25%). Year-to-date, THO has gained 43.42%, versus a 6.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Steve Reitmeister
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