Thor Industries: Americans Will Hit The Road In Style This Summer (NYSE:THO)
Sometimes the best therapy is a long drive and some good music. – Anonymous
The summer driving season is upon us. Given the dramatic shutdown of air travel in 2020, summer vacationers have little choice but to drive. Thor Industries Inc. (THO) is here to help and benefit from a shift in vacation plans. As Americans try to limit their exposure to others, more summer travel will be closer to home and involve less large, overcrowded hotels and resorts.
Thor Industries Inc. has been involved in the recreational vehicle market for 40 years and, with the recent purchase of Erwin Hymer Group (EHG), became the world’s largest RV manufacturer with a dominant position in North America and Europe. The segment of their business that is growing the fastest is the towables, trailers, and the like that attach to your car or truck to haul extra gear.
Second quarter 2020 earnings were released in March and showed positive gains during the start of the COVID-19 outbreak. Third quarter earnings are set to be released at the beginning of June and will give a better picture of the effect of the economic shutdown. Second quarter numbers painted a positive picture of debt reduction, profit margin expansion, increased sales, and a blending of the EHG into Thor.
THO is working to pay off the long-term debt brought on by the EHG acquisition and reduce costs. During the second quarter, they paid down $530 million of EHG-related debt and trimmed SG&A costs by 14%.
THO’s second quarter numbers display a company that is in a cyclical industry but is producing strong results, given all the headwinds. Winter is typically a slow period, but revenue was up 8.6% to $8.98 billion with net sales of $2.0 billion and a gross margin close to historical levels at 12.8%. Thor has been able to meet consumers’ changing demands. Thor leads the industry with 45.1% share of the North American Towables market and has shown growth of net sales of 11.6% for 2Q20 compared to the same period last year. Earnings per share are starting to come back after being hurt by the EHG acquisition. EPS was up 20% from 1Q20 to 2Q20, but still off 15.1% from year ago levels. A strong indicator of Thor’s future is the dealer backlog. Independent dealers had been working through inventory and brought it down by 16.5% compared to 2019. Now, dealers are starting to restock and build inventory as the stronger seasons approach. Dealers are looking to build inventory up by 16-19% for the current season.
Winnebago Industries (NYSE:WGO) is Thor’s closest competitor, but Thor has been maintaining its market share, and its stock is being rewarded this year. Thor also sports a matching dividend yield to the S&P 500 Index of 2.05%, whereas Winnebago is below 1%. Winnebago has lower revenue growth and negative estimated earnings per share for the current quarter.
Thor Industries is worth looking at as a buy because of its dominant position in a growing industry. The consumer discretionary sector, which Thor is a part of, is showing signs of growth and resurgence. The consumer discretionary sector “is a clear play on the reopening of the economy, and investors have been betting on a swift rebound. Retail sales in April were abysmal, but online shopping was still up 8%, so there are some areas of strength. The rally could be getting a little overcooked, but the discretionary sector is beating the S&P 500 by 10% since early April,” as acknowledged in the Lead-Lag Report.
THO has been showing strength from a technical standpoint as well. It has crossed above both its 50-day and 200-day moving average. Over the last 50 trading sessions, there has been more volume on up days than on down days, indicating that THO is under accumulation, which is a bullish condition.
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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.
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