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5 Reasons Why BMO Upgraded Winnebago

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February 27, 2018 12:01 pm
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The recreational vehicle market is in its ninth consecutive year of expansion, which bodes well for Winnebago Industries, Inc. (NYSE:WGO) — as it's capable of superior growth compared to its rivals, according to BMO.

The Analyst

BMO Capital Markets' Gerrick Johnson upgraded Winnebago Industries' stock rating from Market Perform to Outperform with a price target boosted from $58 to $60.

The Thesis

The RV boom is nearly a decade old and should grow at a 10-percent rate in 2018, Johnson said in a Tuesday note. (See the analyst's track record here.) 

Winnebago should be able to deliver sales and earnings growth at a faster rate versus its peers for five key reasons, Johnson said: 

  • The company's new strategies and processes could free up additional capacity to satisfy growing demand. Winnebago can also keep costs in check in the face of rising input and labor costs.
  • The synergies and growth prospects from the 2016 acquisition of Grand Design Recreational Vehicle Co. are still in "very early stages and underappreciated" by investors.
  • Winnebago was historically slow at innovating its product line, but this reputation is no longer deserved, as 2018 features multiple innovative products, including three new motor homes.
  • The RV market is seeing an influx of new first-time buyers searching for higher-quality and more expensive products, which benefits Winnebago. 
  • Recent changes in tax policy should add around 15 percent to Winnebago's earnings and the same tax reform will benefit the company's core market.

Bottom line, Winnebago's stock is trading at just 10x the analyst's FY19E EPS of $4.35, which signals that shares are "significantly undervalued."

Price Action

Shares of Winnebago Industries were down more than 2 percent at $43.30 midday Tuesday.

Related Links:

BMO Says RV Stocks Aren't The Way To Play Hurricane Harvey

Is Winnebago's Stock Overheating? Analyst Thinks Its Valuation Is Starting To Look Pricey

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