4 Reasons This Wall Street Analyst Likes Camping World

2016 has been good to to the RV industry. As of August, it was on pace to have its
best year ever
.

Camping World Holdings Inc CWH launched its IPO last month, and now many sell-side analysts have rushed to initiate coverage on the RV retailer.

The RV industry has been performing particularly well lately; industry staple Winnebago Industries, Inc. WGO had its best single day gain in nearly 25 years last month.

Peer Thor Industries, Inc. THO is up over 36 percent year-to-date.

KeyBanc's Take

KeyBanc has outlined four key points after initiating their own coverage on Camping World:

  1. Fragmented U.S. RV Dealers Creates An Opportunity For Expansion: Since the great recession RV industry shipments have increased at a 15 percent compound annual growth rate. Citing solid fundamentals and access to credit, KeyBanc believes this trend will continue in the near to intermediate term. Analysts are seeing a potential 5 percent upside to FY17 EBITDA estimates.
  2. Cross-Selling Opportunity; New Products And Vertical Acquisition Strategy: With RV sales making up only 41 percent of Camping Worlds gross profits, KeyBanc believes the company will be able to utilize its data analytics and CRM system to upsell customers on products and services. Retention rates are also strong at 65–75 percent representing some repeat business and cross sell opportunities. Analysts also see a potential expansion into marine products.
  3. High Margin/Recurring Revenue Stream: With parts and services making up 22 percent of revenues, they represent a higher margin, driving around 38 percent of gross profits. “Given the recurring/high retention nature of these businesses, we believe it should provide some cushion to earnings should the economy rollover,” said Keybanc.
  4. Depressed Valuation Versus Manufactures Warrants Expansion: “Given that CWH has the highest EBITDA margin out of all the retailers, a business mix and growth profile more in line with KMX and a non-adjusted net leverage ratio below its retailer peers, we believe it should trade at a 3–5x premium to the RV manufacturers,” added KeyBanc.

KeyBanc set an initial price target on Camping World of $28 with an Overweight rating.

At last check, Camping World was down 1.65 percent, trading at $22.

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Posted In: Analyst ColorLong IdeasNewsInitiationTravelAnalyst RatingsMoversTrading IdeasGeneralKeyBancRVs
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