RV Supplier Patrick Industries Has 'Unique Growth Story,' KeyBanc Says

Patrick Industries, Inc. PATK — a manufacturer of building products and materials for the recreational vehicle, manufactured housing and industrial markets — has a unique growth story poised to benefit from both sustained momentum in the current RV cycle and a large M&A white space, according to a KeyBanc Capital Markets analyst. 

The Analyst

KeyBanc Capital Markets analyst Brett Andress initiated coverage of Patrick Industries with an Overweight and $80 price target.

The Thesis

The recreational vehicle industry, which accounts for about 70 percent of Patrick's sales, still has room to grow, Andress said in a Friday note. (See Andress' track record here.) 

RV wholesale and retail sales can sustain their recent growth rates for the next three-plus years, the analyst said. 

Patrick, which has completed over 30 acquisitions since 2010, offers one of the more visible M&A streams in Andress' coverage, he said. These acquisitions accounted for about 15 percent of the company's sales growth, he said. 

The company's M&A stream has over $3 billion of visible white space and makes Patrick's long-term earnings growth story less cyclical, the analyst said. 

KeyBanc projects labor costs will ease in fiscal year 2018 as the labor supply inflects, although it said raw costs are on watch. The firm also said the company's diversification into marine is a long-term positive.

"We see earnings power for PATK nearing $5 per share in FY19, equating to 20-percent-plus annual earnings growth, assuming a continuation of a historical M&A cadence," Andress said. 

KeyBanc sees an additional 50 cents per share of upside possible from tax reform.

The Price Action

Shares of Patrick Industries are up about 28 percent year-to-date.

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