Thor Industries, Inc.

Company Overview: Thor Industries, Inc. (NYSE: THO) is the largest manufacturer of recreational vehicles (RVs) in North America and Europe. The company sells those RVs and related components and accessories to independent dealers in the United States, Canada, and Europe. THO's combined market share for travel trailers and fifth wheels in the United States and Canada was around 41.9%, and 47.6% for motorhomes. THO generated revenues through three segments: (1) North American Towables, (2) North American Motorized, and (3) European.

THO Details

Key Takeaways from Q1FY22 (ended October 31, 2021)

• Surge in Topline: In Q1FY22, the company's revenues were USD 3.96 billion, up 56.00% from USD 2.54 billion in Q1FY21.
• Rise in Net Income: The company's net income increased to USD 244.80 million in Q1FY22 from USD 115.64 million in Q1FY21, representing a diluted EPS of USD 4.34.
• Robust Backlog: THO reported a sharp uptick in the total backlog to USD 18.07 billion in Q1FY22 vs. USD 8.92 billion in Q1FY21.
• Progress in Units Sold: In Q1FY22, the company sold 88,101 units, up from 67,734 units in Q1FY21.

Revenues & Gross Profit Key Highlights; Analysis by Kalkine Group

Recent Developments

• Dragonfly Energy Corp., a leader in lithium-ion battery technology, based in the United States, signed an exclusive arrangement with Keystone RV Company, a subsidiary of THO, on January 20, 2022. All Keystone RV travel trailers and fifth wheels now include Dragonfly Energy Lithium-ion batteries as standard or optional OEM equipment.
• THO revealed its eMobility strategy for electrifying the RV market on January 19, 2022. THO showcased a motorhome and a travel trailer, both of which are electric RV designs.
• THO announced a strategic alliance with TechNexus Venture Collaborative on January 18, 2022, to expedite the speed of innovation, improve the end-customer experience, and drive several margin improvement projects.

Steady Dividends:

• On December 16, 2021, the company declared a quarterly cash dividend of USD 0.43 per share to its shareholders. It was paid on January 13, 2022, to shareholders of record on December 30, 2021. Over the last five years, the company has regularly paid dividends, as also reflected in the chart below (every D represents a dividend payment):

Consistent Dividends (Data Source: REFINITIV)

Balance Sheet & Liquidity Position

• Slight decline in Cash Balance: As of October 31, 2021, the company has a cash and cash equivalents of USD 336.24 million, which was less than the USD 445.85 million as of July 31, 2021.
• Boost in Cash Flow From Operation: In Q1FY22, the firm reported net cash provided by operating operations of USD 41.79 million, compared to cash utilised in operating activities of USD 81.29 million in Q1FY21.
• Boost in Investing Activity: Net cash used in investing activities climbed to USD 791.02 million for three months ended October 31, 2021, up from USD 46.43 million for the same period in the previous year. This adjustment was caused due to USD 747.94 million used in business acquisitions for the Airxcel acquisition and capital expenditures of USD 43.22 million.

Key Metrics: In Q1FY22, THO's ROE and Reinvestment Rate were 8.0% and 7.2%, compared to the industry median of 2.0% and 3.0%, respectively. Operating margin stood at 7.9% in Q1FY22 vs. industry median of 5.1%.

Return Metrics; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 55.87% of the total shareholding, while the top 4 constitute the maximum holding. Kayne Anderson Rudnick Investment Management, LLC., and The Vanguard Group, Inc., hold the maximum stake in the company at 10.30% and 9.46%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

• Customer Concentration Risk: In Q1FY22, FreedomRoads, LLC, the company's largest dealer, accounted for 14% of the total sales. As of October 31, 2021, and July 31, 2021, respectively, this dealer accounted for 16% and 15% of the company's consolidated trade accounts receivable. The loss of this dealer may significantly impact the company's operations and cash flows.
• Geographical Concentration Risk: The majority of the company's US activities are based in northern Indiana, which also hosts its critical US facilities. Any repercussions such as rising labour costs, natural calamities such as weather-related events, and pandemics in this region could impact its financial situation.
• Cyclical and Seasonal Business: Consumer demand in the RV industry has historically been defined by cycles of growth and contraction. The company has also observed that demand for RVs has decreased throughout the fall and winter months, while sales and profits have increased during the spring and summer months. It may not successfully manage costs if it cannot ramp production up or down rapidly enough in response to abrupt variations in demand. This could have a detrimental impact on its operating results and market share.

Outlook:

• Looking ahead, THO anticipates additional supply chain restrictions, logistical issues, and cost pressures in the future. It does, however, anticipate continuing to do well on both the top and bottom lines.
• In terms of volume, the Recreation Vehicle Industry Association (RVIA) recently revised its wholesale shipping prediction for CY21 to more than 602,000 units and more than 613,000 units for CY22, representing a predicted growth of almost 2% for next year. The company expects to grow faster than the industry's RVIA predictions.

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 FY1 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 past six months, THO's share price has corrected 28.20%. The stock made a new 52-week low today. We have valued the stock using the EV/EBITDA multiple-based illustrative relative valuation method and arrived at a target price with an upside of low twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its market dominance in the RV industry, strong return and profitability ratios, steady dividend yield, and inorganic growth activities. We have taken peers like Winnebago Industries, Inc. (NYSE: WGO) and Patrick Industries, Inc. (NASDAQ: PATK). Considering the healthy return profile, growth in top and bottom-line performances, inorganic endeavors, encouraging outlook, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 84.34, down 4.52% as of February 23, 2022.

THO 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 the 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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