Strong Growth Outlook for Recreational Vehicle Companies

Awais is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Call it a blessing, or a curse, but it is a time-tested fact that consumers in the United States are sensitive to the changing economic scenarios of the country. Now that the economic recovery is being reported in the news more than ever, American consumers are showing a revival in their confidence and the demand for luxury items is increasing.

Recreational Vehicles (RV) have a long history in the United States. The RV industry has its beginning in the 1920s and 1930s, right after the advent of the automobile industry. The RV lifestyle is made up of those people who are interested in travelling rather than living at the same place, and also those who are vacationing. RV sales have increased after the recessionary period as consumers are now willing to commit to large purchases like RVs. The industry includes several companies that are worth a closer look. Thor Industries (NYSE: THO) and Winnebago Industries (NYSE: WGO) are two companies in the RV industry that have caught my attention. Polaris Industries (NYSE: PII) is an American snowmobile and ATV manufacturer; however, demand for its products is also affected by the increase in recreational activities, much like that of the RV companies.

Thor’s commanding position

Thor’s commanding position makes it the largest producer of RVs in the world. The company has been profitable for the last 30 years. Amazingly, its business model allowed it to report a small profit in 2009, when other companies were going off the cliff and reporting huge losses because of the financial meltdown. The company manufactures various types of RVs, small and mid-sized busses, and parts for its products. The company reported record sales of $ 3.1 billion in the year ended 2012.

The majority of the company’s revenues come from the towable RV segment. The company’s sales and earnings have continued to increase in 3Q13 (the company’s fiscal year ends July 31.) Thor sold off its ambulance manufacturing company in May 2013 in order to focus on its RV and bus segments. The company’s financial performance has never been better, and I expect it to show robust growth in the quarters to come.

Winnebago’s successful niche

Winnebago, though small, is a direct competitor of Thor, that specializes in the production of motorhomes. For 3Q13, the company reported a mind boggling increase in its financial performance. On a YoY basis, the company’s revenues and net income increased by 40.1% and 94.4% respectively. The solid financial performance was the result of the marketplace’s positive response to the company’s new 2014 motorhome and towable products, such as the new Winnebago Forza and Itasca Solei. The company is small, but its motorhomes have a great reputation in the market. Winnebago investors will continue to benefit from its focus on its popular motorhome vehicles.

Diversified growth for Polaris

Polaris is a diversified company that targets off-road vehicle, snow mobile and on-road vehicle markets in the United States, Canada and internationally. The company also manufactures spare parts for its products such as winches, plows, racks, tires, mowers etc. With the acquisition of Aixam Mega S.A.S, the company has further diversified its product offerings and is now able to sell mini trucks and quadricycles (mini cars). In addition to its vehicle business, the company sells recreational apparel to complement its products.

For the year ended 2012, the total sales of the company increased by 21% on a yearly basis. The management of the company expects sales for the year 2013 to increase by 12-15%. The company reported solid cash reserves with no net debt in its balance sheet. All of the company’s products have gained market share in the 1Q13.

The greatest increase in sales in 2013 is expected to come from the Commercial Vehicles segment, launched in March this year. These commercial vehicles are available in multiple model configurations, with special features such as hydraulics, attachments, and power take-offs. The initial reception of these vehicles has been positive, and I expect this segment to become a major revenue contributor to the company.

My takeaway

The economic recovery is fueling growth across many industries, and the recreational vehicle industry has shown impressive growth in recent quarters. An increase in consumer confidence and vacation-related activities is spurring growth for this industry. I believe the time is right for investing in the three companies I have analyzed above.

 

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Awais Iqbal has no position in any stocks mentioned. The Motley Fool recommends Polaris Industries. The Motley Fool owns shares of Winnebago Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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