Company Overview

Elkhart, Indiana based Thor Industries, Inc. is the world’s largest manufacturer of recreational vehicles (RVs) and was founded in 1980. Through its various subsidiaries, the company is engaged in the manufacture and marketing of RVs to independent, non-franchise dealers across the United States, Canada, and Europe.

THO Details

Revenue Segments

Thor Industries, Inc. (NYSE: THO) operates in three segments, viz. 1) North American Towable segment, which includes manufacturing and marketing of travel trailers and fifth wheels by brands like Airstream, Heartland, Jayco, Keystone, and KZ; 2) North American Motorized segment, which provides the same products as the previous segment but through Airstream, Jayco, and Thor Motor Coach Brands; and 3) European segment, which consists of the EHG business, manufacturing both towable and RVs via eight production facilities across Europe.

Sustainability Initiatives

On April 20, 2021, THO published its Carbon & Climate Report specifying business risks associated with climate change. In the report, the company set a goal for itself to go carbon net-neutral by 2050, which goal included a recent investment of USD 1.28 million to reduce its energy consumption by 10,815 Megawatt-Hour (MWh), expanding its partnership with the National Forest Foundation to plant 500,000 new trees by 2025, and internal investments in self-generating renewable energy. As a result, the company expects to achieve a 50% reduction in the emission of greenhouse gases by 2030.

3QFY21 Key Results Highlights

During Q3FY21 (ended April 30, 2021), THO reported earnings of USD 3.29 per share, representing a 665.1% year over year increase. Net sales increased by 105.7% to USD 3.46 billion from USD 1.68 billion in Q3FY20, primarily due to strong product demand and increased production volumes. Unit shipments during Q3FY21 increased by 113%, 148% and 34% for its North American Towable, North American Motorized, and European RV segments, respectively. In addition, USD 19.5 million in net sales for Q3FY21 was due to the acquisition of the Tiffin Group on December 18, 2020. Net income for the quarter was USD 182.72 million vs USD 22.78 million in Q3FY20. As of April 30, 2021, the consolidated RV backlog was USD 14.32 billion, an increase of 548.3% over the RV backlog as of April 30, 2020.

Revenue & Gross Profit; Analysis by Kalkine Group

Other Key Developments

The company stated in its Q3FY21 release that the RV industry (and THO, by extension) is facing supply chain-related constraints, limiting its ability to increase production to match the dealer demand. THO is currently working towards reducing these constraints. In addition, on March 25, 2021, the company repriced its Senior Secured Term Loan B facility, which is estimated to generate cash interest savings of around USD 13 million on an annualized basis.

Key Metrics, Liquidity & Balance Sheet Details

The company exited the quarter with a cash balance (excluding restricted cash) of USD 294.56 million. Its property & equipment increased to USD 1.16 billion from USD 1.11 billion reported at the end of FY20. Net long-term debt (excluding current maturities) stood at USD 1.72 billion as of April 30, 2021.

In Q3FY21, EBITDA and operating margins stood at 9.2% and 6.7%, higher than the year-ago figures of 5.5% and 1.3%, respectively. ROE in Q3FY21 was 6.9% vs the Industry median of 3.4%. Debt/Equity of the company was 0.65x as of April 30, 2021, vs industry median of 0.52x.

Profitability and Leverage Profile; Analysis by Kalkine Group 

Top 10 Shareholders

The top 10 shareholders together form around 56.94% of the total shareholding, while the top 4 constitute the maximum holding. Capital Research Global Investors and The Vanguard Group, Inc. hold the maximum stake at 11.39% and 9.22%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

On the downside, the company’s largest dealer is Sales to FreedomRoads, LLC, which contributed approximately 15% to the company’s net sales in FY20. During its recent tenure, Sales to FreedomRoads, LLC acquired several other RV dealerships, which has impacted THO's revenue. Furthermore, prolonged consolidation of dealerships by Sales to FreedomRoads, LLC could further impact THO's financial health in the future. Therefore, the loss of this dealer could also harm its financial state of affairs. In addition, the RV industry is highly competitive, with around 65 RV manufacturers just in the U.S. and Canada (according to RVIA). Furthermore, the company’s business is cyclical and seasonal in nature and, as a result, subject to fluctuations in sales and production driven by growth and contraction in consumer demand, which could affect the company's results of operations.

Outlook

The recreational vehicles industry is witnessing a huge demand even as the economy is recovering from the COVID-19 pandemic. As per the recent RVIA forecasts, total North American wholesale RV shipments are estimated to amount to approximately 576,100 units in CY21, representing an increase of 33.8% compared to CY20. Therefore, the company plans on strategically increase its capacity and production efficiencies to cater to this growing RV demand.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation 

Over the last three months, the stock went down by ~22.55%. The stock is currently quoting towards the lower band of its 52-weeks’ trading range of USD 78.64 to USD 152.20. We have valued the stock using the EV/EBITDA multiple based illustrative relative valuation method and arrived at a target price of an upside of low twenties (in percentage terms). We believe that the company can trade at a discount compared to its peer’s average, considering the risks involved with the customer concentration/consolidation, competition from peers, and cyclicality of the business. We have taken peers like Winnebago Industries, Inc. (NYSE: WGO), Harley-Davidson, Inc. (NYSE: HOG), among others.  Considering the company’s robust Q3FY21 performance, increasing demand for RVs, initiatives to expand production, current trading levels, and valuation, we give a “Buy” recommendation on the stock at the closing price of USD 107.36 down ~0.62% on July 14, 2021.  

THO Weekly Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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