Winnebago (WGO) rides the new camping wave, but will it last long?

Winnebago Industries, Inc. (NYSE: WGO), a leading manufacturer of recreational vehicles, witnessed an unexpected rise in demand last year, though the business was hit by the pandemic initially. The movement restrictions and safety concerns linked to the crisis encouraged many people to buy specialty vehicles to meet their domestic travel needs.

Outdoor Attraction

During the pandemic, people ventured out for camping and outdoor activities, which often involved the use of caravans and motorhomes. What makes the situation favorable for Winnebago is that demand conditions would remain stable in the post-COVID era amid economic recovery and withdrawal of the movement restrictions. It is estimated that about 60% of Americans engaged in some kind of outdoor activity last year, with nearly half of them doing it for the first time.

The recent rally in Winnebago’s stock is expected to continue this year, making it an attractive investment. Experts overwhelmingly recommend buying WGO, citing the ongoing recovery and bullish financial outlook. But the nature of the industry and muted economic activity calls for caution. The market will be closely following the company’s performance in the latter part of the first half, after the impressive start to fiscal 2021.

Upbeat Start

Earnings, adjusted for one-off items, more than doubled to $1.69 per share in the first quarter even as the company expanded its organic recreational vehicle market share further. As a result, revenues surged 35% to $793 million. Market watchers had predicted a slower growth both in revenues and the bottom-line.

“Numerous cost saving and productivity initiatives taking place across Winnebago Industries enterprise are starting to positively impact our results, enabling higher levels of sales and profitability. In the Winnebago branded Motorhome business, we continue to drive manufacturing efficiencies through continuous improvement activities, relocated diesel operations from Oregon to Iowa,” said CEO Michael Happe during an interaction with analysts last month.

Resilience

Winnebago, headquartered at Forest City in Iowa, weathered the COVID-linked disruption and managed to maintain stable production at the Iowa/Indiana facilities and ensure sufficient inventory. The plants have been ramped up to optimize capacity. The solid order backlogs point to continued demand.

Besides M&A, one of the focus areas of the management’s growth strategy has been joint ventures and partnerships. However, it has been more than one year since the company completed its last buyout – Newmar Corporation in November 2019.

From Winnebago’s first-quarter 2021 earnings conference call:

“Over the past several years, Winnebago Industries has strategically expanded our offering beyond the iconic Winnebago brand, bringing on Grand Design, Chris-Craft, and most recently, Newmar, which celebrated its first anniversary as part of the Winnebago Industries family on November 8. Each of these unique brands, are tied together with the golden threads of quality, innovation, and service.”

An Edge over Peers

Historically, Winnebago’s motorhome products commanded a price premium due to its competitive advantage in that segment, thanks to continued innovation. But the business is seasonal in nature, especially the recreational vehicles and marine segments, with spring and summer being the peak selling periods. At the same time, all the areas of the business are vulnerable to competition, with rivals like Thor Industries (THO) constantly vying for market share.

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Read management/analysts’ comments on quarterly reports

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The rebound in Winnebago’s stock from the lows seen in mid-March last year was so strong that it climbed to an all-time high in the following weeks. This week, the shares traded pretty close to the peak, after a series of ups and downs. The value nearly tripled in the past ten months, outperforming the market. WGO closed the last trading session up 5%.