Recreational vehicle (RV) manufacturer Winnebago Industries, Inc. (WGO - Get Rating) in Forest City, Iowa, operates in six segments–Grand Design Towables; Winnebago Towables; Winnebago Motorhomes; Newmar motorhomes; Chris-Craft Marine; and Winnebago Specialty Vehicles. The demand for RVs rose substantially amid the COVID-19 pandemic as people sought alternative travel options with lower risks of contracting the virus. WGO CEO Michael Happe said in an interview that the pandemic accelerated WGO’s growth trajectory because the company was able to optimize retail pricing in a way it had not been able to do in a long time.

For its fiscal year 2022 first quarter, ended November 27, 2021, WGO’s revenues increased 45.7% year-over-year to a record $1.20 billion, surpassing the FactSet consensus estimate of $1.03 billion. This can be attributed to 37.5% organic growth, driven by strong consumer demand and pricing increases. Its gross profit came in at $229.40 million, up 67.4% from the year-ago value. Its net income improved 73.5% from the same period last year to $99.60 million. And its adjusted EPS stood at $3.51, reflecting a 97.2% rise from the prior-year quarter. And the company beat the Street’s EPS estimates by 50%.

Following the earnings release on December 17, shares of WGO gained 1.1% intraday to close Friday’s trading session at $68.41. WGO outperformed the broader S&P 500 index, which declined 0.6% intraday on Friday. Furthermore, the stock has gained 14.1% in price year-to-date.

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Here is what could shape WGO’s performance in the near term:

Lower-than-industry Dividend Yield

In  August, WGO increased its quarterly dividend payout by 50% to $0.18 per share. Regarding this, WGO CFO Bryan Hughes said, “This action further reflects the company’s strong financial position and the sustained appeal of our portfolio of premium outdoor lifestyle brands, which leads to a high level of confidence in our future.”

However, WGO’s 1.05% forward dividend yield is 41.4% lower than the 1.79% industry average. In addition, the company’s one-year yield on cost and the five-year yield on cost of 0.86% and 1.51%, respectively, are significantly lower than the 1.82% and 2.16% industry averages. Its 5.71% free cash flow yield is 2.8% lower than the 5.88% industry average.

Also, WGO’s 0.99% four-year average dividend yield is 46.9% lower than the 1.87% industry average.

Low Profit Margins

WGO’s 18.6% trailing-12-month gross profit margin is 48.2% lower than the 35.89% industry average. The company’s 4.37% trailing-12-month levered free cash flow margin is 25.6% lower than the 5.88% industry average. Its 12.66% trailing-12-month EBITDA margin is slightly lower than the 12.8% industry average. In addition, the company’s 1.49% trailing-12-month CAPEX/Sales is 40.5% lower than the 2.5% industry average.

Consensus Rating and Price Target Indicate Potential Upside

Of the four Wall Street analysts that rated WGO, three rated it Buy, and one rated it Hold. The 12-month median price target of $96.00 indicates a 40.3% potential upside from Friday’s closing price of $68.41. The price targets range from a low of $85.00 to a high of $115.00.

POWR Ratings Reflect Uncertainty

WGO has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering eight distinct factors, with each factor weighted to an optimal degree.

WGO has a C grade for Stability and Momentum. The stock’s relatively high 1.86 beta is in sync with the Stability grade. Also, WGO is currently trading below its 50-day and 200-day moving averages of $71.50 and $72.61, respectively, indicating a downtrend.

Of  67 stocks in the F-rated Auto & Vehicle Manufacturers industry, WGO is ranked #15.

In addition to the grades I have highlighted, check out WGO ratings for Growth, Momentum, Sentiment, and Value here.

Bottom Line

WGO is a leading RV producer with a substantial market share in the United States and internationally. Thus, analysts expect the company’s revenue and earnings to increase at a stable rate over the near term. However, WGO has announced plans to go carbon-free by 2050, indicating an increasing shift toward electric RVs. But because the semiconductor shortage is expected to continue well into 2022, the company’s lower-than-industry profit margins might decline further. Thus, we think investors should wait until WGO’s profit margins rise before investing in the stock.

How Does Winnebago Industries, Inc. (WGO) Stack Up Against its Peers?

While WGO has a C rating in our proprietary rating system, you might want to consider looking at its industry peers, Daimler AG (DDAIF - Get Rating), Isuzu Motors Limited (ISUZY - Get Rating), and Suzuki Motor Corporation (SZKMY - Get Rating), which have a B (Buy) rating.

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WGO shares were trading at $66.57 per share on Monday morning, down $1.84 (-2.69%). Year-to-date, WGO has gained 11.93%, versus a 22.26% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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