Is Winnebago's Stock Overheating? Analyst Thinks Its Valuation Is Starting To Look Pricey
After a more than 45 percent gain since the start of 2017, analysts at Stifel now recommend Winnebago Industries, Inc. (NYSE:WGO) investors to "[pull] over at a rest stop." Analyst Michael Baudendistel downgraded Winnebago's stock from Buy to Hold but with a price target raised from $40 to $44.
Industry data surrounding the recreation vehicles market remains strong and Winnebago's management team deserves credit for a successful turnaround plan, the stock's recent gains need to also be considered, Baudendistel suggested. As such, investors should still hold a favorable view of the company as new products and production efficiency initiatives will support near-term fundamentals.
However, there are multiple concerns that also need to be considered, the analyst added. Specifically, a lot of recent growth in the RV market has been in the lower-end equipment segment where Winnebago has less exposure. Also, industry growth as a whole could start slowing down in 2018 or 2019 and the stock's valuation at current levels doesn't reflect the cyclical risk inherent in the RV business model.
"From a portfolio manager perspective, we're not sure this is the place to be next year," Baudendistel wrote. "RV production tends to lead the broader economy into downturns (by more than two years in each of the prior four cycles), as purely discretionary purchases are the first to be cut when the economy starts to slow."
Bottom line, while now may not necessarily be the right time to call a peak in Winnebago's stock, investors should consider becoming "increasingly cautious" towards sectors that are "more likely to be canary than coal miner."
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