Thor Industries Hammers Expectations With Strong Q1 Beat

Thor Industries, Inc. THO reported fiscal first quarter results Monday, posting a strong top- and bottom-line beat.

The Analyst

Baird Equity Research's Craig Kennison maintains an Outperform rating on Thor's stock with a price target boosted from $136 to $160.

The Thesis

Thor's "blockbuster" earnings report was driven by strong dealer orders, as more consumers and first-time recreational vehicle buyers are attracted to the market, Kennison said in a Monday note. (See Kennison's track record here.) 

This helped drive a 63-percent improvement in the company's earnings per share, improved gross margins and incremental operating leverage. Thor already boasts a net cash position after borrowing capital to finance the Jayco acquisition last year, which prompted management to reward shareholders with a 12 percent dividend increase, the analyst said. 

The RV provider's backlog of 70 percent in the quarter does mark a deceleration from a prior "unsustainable" rate of more than 95 percent, and backlog growth is expected to slow over the remainder of the fiscal year, Kennison said. But the company continues to invest in adding capacity and helping dealers catch up with demand.

Finally, dealer inventory did rise 27 percent in the quarter, but this shouldn't be a concern, as retail demand continues to be strong and inventory turns are stable, the analyst said. As a whole, the RV market remains "strong," Kennison said. Despite a slowdown in growth, the Baird analyst boosted his fiscal 2018 EPS estimate from $7.65 to $8.95, with additional upside possible from a stronger retail environment.

Price Action

Shares of Thor Industries were trading higher by nearly 12 percent ahead of Tuesday's market open at $152.51, above the stock's 52-week high of $138.74.

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