Company Overview: Thor Industries, Inc. (NYSE: THO) manufactures and distributes recreational vehicles (RVs) to independent, non-franchise dealers throughout the United States, Canada, and Europe. The company's operating segments are 1) North American Towables, which includes the sale of travel trailers and fifth wheels; 2) North American Motorized, which includes the Airstream, Jayco, and Thor Motor Coach brands; and 3) European, which manufactures both towables and RVs through eight manufacturing facilities in Europe.

THO Details

Key Takeaways from Q2FY22 (ended January 31, 2021)

• Significant Growth in Revenue: The company reported YoY growth of 42.06% in Net Sales to USD 3.88 billion in Q2FY22 vs. USD 2.73 billion in Q2FY21, driven by increase in demand and recent acquisition of Tiffin Group and Airxcel.
• Surge in Net Income: In Q2FY22, THO reported a net profit of USD 266.57 million, increased from USD 132.52 million in Q2FY21, representing a YoY growth of 101.15% with a diluted EPS of USD 4.79.
• Growth in Volume Sold: THO’s sales volume increased 14.46% YoY to 78,484 units in Q2FY22 from 68,571 units in Q1FY21.
• Share Repurchase: In Q2FY22, the company bought back ~590,961 shares of its common stock for USD 58.3 million at an average price of USD 98.71. As of January 31, 2022, THO had USD 191.70 million remaining under previous authorizations.  

Revenue & Net Income Key Highlights; Analysis by Kalkine Group

Segment Wise Results Q2FY22:

• North American Towables: This segment accounted for 23% of the total revenuein Q2FY22 and reported YoY growth of 44.56% to USD 1.99 billion, attributable to 16.20% YoY growth in volume and favourable pricing.
• North American Motorized: It contributed 21% of the total revenuein Q2FY22 and expanded by 69.29% YoY to USD 976.81 million, primarily due to additional 1,792 units sold during the quarter and a 37.2% increase in the overall net price per unit.
• European Segment: This segment represented 68% of the total revenue in Q2FY22 and witnessed a YoY decline of 1.33% to USD 723.73 million, driven by decline in volume and negative forex impacts on selling price.

Balance Sheet & Liquidity Position

• Decline in Cash Position: The company exited Q2FY22 with a cash balance of USD 305.24 million, slightly lower than USD 445.85 billion at the end of FY21.
• Cashflow from Operations: Operating cash inflow in the quarter ended January 31, 2022, increased to USD 298.05 million from USD 88.57 million in the prior corresponding period.
• Increase in Debt: THO reported total outstanding debt of USD 2.21 billion at Q2FY22 end, higher than USD 1.64 billion as of July 31, 2021.

Recent Developments

• Quarterly Dividend: On March 22, 2022, the company declared a quarterly dividend of USD 0.43 per common share, payable on April 20, 2022, to shareholders of record on April 06, 2022.
• Key Appointment: On March 25, 2022, McKay Featherstone, currently serving as Vice President of Product Development and Engineering at Airstream, was appointed as Senior Vice President of Global Innovation at THO. Josef Hjelmaker, the company's Chief Innovation Officer since September 2020, has begun transitioning his responsibilities to Mr. Featherstone and will provide ongoing advice to ensure a smooth transition.

Key Metrics: In Q2FY22, THO's EBITDA and net margins were 11.5% and 6.9%, higher than the industry median of 5.6% and 5.2%, respectively. ROE stood at 8.4%, 30 bps more than the Q4FY21 return. Debt/Equity was 0.69x as of January 31, 2022, lower than 0.73x on October 31, 2021.

Profitability Metrics and Leverage Profile; Analysis by Kalkine Group

Top 10 Shareholders: The top 10 shareholders together form around 56.47% 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 10.41% and 9.56%, respectively, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Risk Analysis

• Customer Concentration Risk: FreedomRoads, LLC, the company's largest dealer, accounted for 13% of total revenue in FY21. FreedomRoads' recent acquisition of several additional RV dealerships has impacted THO's ability to negotiate lower prices.
• Operates in a Cyclical Industry: THO operates in a cyclical and seasonal RV market; thus, revenues can vary, placing the company's financials at risk.

Outlook

• Looking forward, THO expects its North American wholesale RV shipment in the range of 578,800 – 603,300 units.

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: THO's share price has corrected 24.41% over the past six months. The stock is currently leaning towards the lower band of its 52-week range of USD 80.26 to USD 149.38. 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 mid-twenties (in percentage terms). We believe that the company can trade at a premium compared to its peer's average, considering its strong margins, solid margins, robust ROE, and reduction in debt. We have taken peers like The Goodyear Tire & Rubber Co (NASDAQ: GT) and Patrick Industries, Inc. (NASDAQ: PATK). Considering the solid financial performance, growth in volumes, robust margins, associated risks, and current valuation, we give a "Buy" recommendation on the stock at the closing price of USD 83.59, down 4.39% as of March 30, 2022.

THO Technical Chart, Data Source: REFINITIV

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.

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.

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