Thor Industries, Inc. (NYSE:THO) displayed its formidability as it ended the fiscal year with impressive results. The automotive industry might have staggered amidst the pandemic, but the company remained firm and intact. Moreover, the consistent and significant growth in dividends reaffirmed its commitment to its shareholders amidst the changing market condition recently. This is a testament to the company’s strength and resilience. Nevertheless, the stock price continues to decrease for a week already despite being undervalued.
Analyzing the Financials of Thor Industries, Inc.
Operating Revenue and Operating Costs
Thor Industries, Inc. has accelerated over the years. The growing demand and strategic production and pricing drove the rapid increase in sales. Since it had an annual growth rate of 14%, the operating revenue has almost quadrupled over the past decade. Although it fell by 4% from $8.3 billion in 2018 to $7.9 billion in 2019, the company easily got back on its feet a year after. The company witnessed the negative impact of the pandemic as it hit the automotive industry. Despite this, it did not seem to stagger. It even finished 2020 with good results as the revenue grew by 3.3% compared to the previous year. It showed the company’s resilience and its intact and well-handled operations. As the company withstood and adapted to the current situation, one can expect growth in the long run. The estimation using the Linear Trend Analysis confirms this observation as the projected value may increase to about $10 billion for the next five years.
On the other hand, the quarterly values showed how sales changed for the last four years. We can determine now why sales suddenly fell in 2019. It happened during the first half of FY 2019. It generated an accumulated value of $3.05 billion, which was 28% lower than the comparative values in the previous year. From 3Q 2019 to 2Q 2020, we can observe that the revenue went up again. But, as the pandemic came in surprise, the sales plunged in 3Q 2020. But, in 4Q 2020, it is evident that the company already handled the situation prudently. It amounted to $2.32 billion. It was the highest 4Q revenue from 2017 to 2020. Indeed, the company finished the fiscal year strong.
Meanwhile, the operating costs grew consistently. Even if sales fell in 2018, it still increased. Nevertheless, the company managed to keep it lower. As the years went by, their gap started to widen. It means that, as the demand increased, the company continued to be more efficient. In 2020, sales became $1 billion higher than costs. As projected, their gap may increase to almost $2 billion for the next five years.
The company’s net income had an upward trend for the last 10 years. In 2018, it already grew by almost four times its value in 2010. In less than a decade, it already moved from $110 million to $430 million. However, it took a nosedive in 2019. Net income plunged by 69.7%. This might have surprised its stakeholders. It appeared as if Thor got stuck in a pothole while driving so fast. As I’ve mentioned earlier, its sales declined by 4%, but the costs and other operating expenses still increased. As a result, the operating profit decreased. But, if we delve into it more, we will understand that it was primarily driven by the interest expense and unusual expenses. It does not surprise us at all because we know that the company acquired Erwin Hymer Group. As the company incurred acquisition costs, it also had to borrow and issue shares to leverage it. As a result, debt increased, and it also acquired its preexisting debt and interest expense. Nevertheless, it is still impressive that, despite this, the company remained profitable and above $100 million. Also, one must remember that Erwin Hymer Group is the largest RV manufacturer in Europe. In 2020, it finished the fiscal year strong despite the crisis. it bounced back by 67.3% as net income significantly increased from $133 million to $223 million. The financial strength of the company becomes more apparent every year. For the next five years, net income is estimated to increase to $300 million to $400 million.
Taken from MarketWatch: Annual Financials
The Trend of the quarterly amount of net income is similar to sales. It just shows that its core and non-core operations are consistent and well-coordinated. Net income was lowest in three quarters. It was the period when the company increased its borrowings and spent on the acquisition of Erwin Hymer Group. From 4Q 2019 to 2Q 2020, the values were higher than the comparative ones. During 3Q 2020, the pandemic struck the market. Net income fell again by almost 30%. But 4Q 2020 proved the financial strength and resilience of the company. Net income rose to $119.2 million. It was higher than the amount in 2018 and 2019 by 35% and 30%, respectively.
Taken from MarketWatch: Quarterly Financials
Return on Asset
The trend of Return on Asset (ROA) is similar to net income. It just means that the assets have consistently grown over the years. The increase was not massive until the acquisition in 2019. While the company incurred costs and interest expenses on increasing its borrowings, the company also acquired the company’s assets. As a result, the assets almost doubled from $2.78 billion to $5.66 billion. In 2020, it went back to its normal growth rate as it only increased by about $110 million and amounted to $5.77 billion.
The trend of ROA before the acquisition was impressive. The lowest values were in 2011 and 2012 at 8.8% and 9.7%, respectively. The other values ranged from 11% to almost 16%. Upon acquisition in 2019, ROA instantaneously fell to 2.3%. This was expected since net income decreased while the assets grew dramatically. But, in 2020, it made a comeback as it climbed up to 4%. For the next five years, it is projected to increase to 6%.
Taken from MarketWatch: Annual Financials
Return on Equity
Like the assets, the equity is consistently increasing. From 2010 to 2018, Return on Equity (ROE) moved from 11% to 23%. Both ROE and ROA were high. It means that the company’s financial leverage was more from equity. The company primarily relied on equity rather than borrowings to increase its assets. In 2019, ROE dropped to 6% due to the sudden decrease in net income. But, in 2020, it increased again by 3% amidst the pandemic. Despite the sudden changes in net income, ROE remained ideal. From 2010 to 2020, the company had an average ROE of 16%, while the automotive sector had 12%. From the company’s current ROE of 9.5%, it is estimated to increase again to 13% to 14%.
Meanwhile, the company’s growth without having to rely on borrowings can be determined using the Sustainable Growth Rate (SGR). Since the company’s Dividend Payout Ratio in 2019 was 40%, the remaining 60% will remain in the company or the Retention Ratio. With this, we can see that the company can still grow by 6% in the current fiscal year without borrowing. This is still acceptable as the crisis persists. The industry is yet to recover.
Taken from MarketWatch: Annual Financials
The Ability of the Company to Suffice and Raise Dividend Payments
Dividends Per Share
The company continues to distribute substantial and increasing dividends as time goes by. There have been years when it dramatically grew. On average, the dividends grew by 21.9% every year. With this, one can observe how the dividends changed over time. From $0.28 per share in 2010, it climbed up continuously to $1.56 per share. In 10 years, it already changed by more than five times. This is an important factor to consider by many long-term investors. This current fiscal year, the company declared that the dividends would increase by 2.5%. It means that the annual dividend would reach $1.64 per share. Using the Dividend Growth Model, the dividends per share are estimated to reach $1.96 in 2024.
Dividend Payout Ratio
Both earnings and dividends have been increasing over the years. In 2010, the Dividend Payout Ratio was just 0.16. It means that the company allotted 16% of earnings to the dividend payment. As the years went by, it rose to about 20%. In 2019, it drastically increased to 63%. Even if the earnings took a nosedive, the company remained committed to increasing the dividends. The dividends even changed by 12%. Despite it, the company remained financially sound. It had enough to fortify its operations. Even if the pandemic hit hard, the company remained viable as the earnings still grew. The ratio remained substantial at 40%. Indeed, the company always considers the investors as the dividends kept increasing amidst the changes in earnings and uncertainties in the economy. Also, it ensured that it had enough to cover and increase it and even sustain the operations in the long run. For the next five years, the dividends per share may go back to 27%.
Meanwhile, Nasdaq is more optimistic as it estimated the company’s earnings per share in 2021 and 2022 at $6.57 and $7.34, respectively.
Taken from MarketWatch: Annual Financials and Nasdaq: Dividend History
Dividends, Net Income, and Free Cash Flow
The capacity of the company to raise the dividend payments and sustain the operations in the long run can be checked in the Cash Flow Statement. One has to estimate the earnings and cash inflows from the changes in assets and liabilities that are directly involved in the company’s operations. Then, they have to determine the Capital Expenditure (CAPEX) or the cash spent on the purchase of fixed assets. The resulting value is the company’s Free Cash Flow (FCF).
Thor Industries, Inc.’s FCF has consistently increased since 2010. Even if the company’s earnings decreased by 4% and fixed assets increased significantly in 2019, FCF still grew by 8%. This is mainly due to the drastic increase in cash flows from receivables and other operating funds. It shows that the company has enough cash inflows to cover its dividend payments. Also, the increasing trend of cash from receivables means that the company’s efficiency in collecting receivables from customers and other related groups has increased over the years. Should the company decide to liquidate all its operating assets, it will have more than enough to cover all its payments, including the dividends, for a long period, and to reinvigorate its operations. Since the company’s earnings are estimated to increase, FCF may follow for the next five years.
Taken from MarketWatch: Annual Financials and Nasdaq: Dividend History
After hitting $36.16 last March 30, the stock price has generally increased and became bullish. However, after reaching $103.22 last October 5, it seemed to move/start moving in reverse. Currently, it is set at $96.59. While it is too early to tell that the price has become bearish again, we must determine if the stock value is ideal in reference to the dividends. Using the Dividend Discount Model, we will try to estimate the value of the stock price.
Current Stock Price: $96.59
Average Dividend Growth: 0.218515504
Estimated Dividends Per Share: $1.64
Cost of Capital Equity: 0.2354944874
Derived Value: $117.6964125 or $117.70
With the estimation, we can say that the stock price is undervalued. This may be justified since the company’s financials and dividends payments increased amidst the pandemic. But one must remember that other factors have an impact on stock price variations. Hence, one must update himself on the current market and economic trend and read the company’s financials and press releases to have more ideas.
Thor Industries, Inc. in Action
Thor and the Fight Against Climate Change (THOR Industries Commits To Combat Climate Change)
As part of its Environmental, Social, and Governance (ESG), the company signed the UN Global Compact Business Ambition for 1.5 C last month. It was part of the company’s pledge net-zero greenhouse gas emissions target by 2050. Thor, being the largest RV manufacturer, has already thought ahead of time. With its Thor Motor Coach, the company has decided to focus more on lithium battery and solar power than diesel. With the more rampant natural disasters and this pandemic that are attributed mostly to climate change, the UN, governments, and other large institutions are focusing more on eco-friendly products. With this, the rise of eco-friendly vehicles may be seen for the next few years.
As the company pays attention to using renewable energies, it may start partnerships and even get more investments from different groups to achieve this goal. In FY 2020, it seemed that the company has already handled its operations with the newly acquired Erwin Hymer Group very well. This was visible in the growth in its financials amidst the pandemic. Hence, this action and possible results may further stimulate its already strong and massive operations.
Thor is the largest RV manufacturer in the world. There may have been changes in its sales in earnings, but that did not affect its performance. It remained strong despite this and the restrictions caused by the current situation. With this, are the stocks here worth buying?
Short-term Investors: The current PE Ratio of 24.03 implies that the shares of the company are undervalued. But the estimation using the dividend Discount Model says otherwise. These are two conflicting analyses as the first one focuses on earnings, while the latter is on the dividend growth. Meanwhile, the bullish trend of the stock price has little to moderate volatility, which suggests a little to moderate risk. For almost a week now, it appears to be decreasing, but it is still too early to tell if it has started a bearish trend. With this, I recommend an investor to wait for a few days or weeks to confirm if it is turning bearish. Wait until the price dips further before buying it. I am more on the optimistic side due to the impressive performance of the company amidst the impact on the automotive sector and the continuous dividend growth.
Long-term Investors: Since the ’90s, Thor has been the second-largest RV manufacturer in the world. Everyone has seen its impeccable performance over the years. Its financials continued to grow while remaining solid and intact. Upon the acquisition of Erwin Hymer Group in 2019, the company became the largest RV manufacturer in the world. With this, it had to do repositioning and incurred massive costs. Sales fell by 4% while the earnings decreased substantially. Nevertheless, the company remained viable as it remained above $100 million. It still had more than enough to increase its dividends and to keep up with its operations. In 2020, the pandemic hit the sector. The company was also affected during the third quarter but did not stumble. Sales and earnings even rose dramatically. As a result, the dividends grew as well. This shows that amidst the changes in the company’s operations and the plunge in the market caused by situations like this, the company can cope with these and remain formidable. As announced, the dividends would grow by 2.5% in 2021. Using the Dividend Growth Model, the dividends will further rise in the future. It is safe to say that the company offers security. Long-term investments in the company are highly encouraged. Thor Industries, Inc. promotes long-term income and stability.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.