Thor Industries Stock Pitch (THO – 3/28/2017) – $97.34

Buy Thor Industries!!!

Thor Industries is market leader in the manufacturing of recreational vehicles and sells them in the U.S and Canada. Thor’s 2016 fiscal year revenue ending in July totaled $4.582 billion; almost double the number two player in the space Forest River, Inc (Hoovers).

Value:

P/E (TTM) – 16.8
P/E (Fiscal Year Ending 7/31/17) – 15.1
PEG – 0.44
Discounted Free Cash Flow – $168

Thor Industries (THO) trades at 16.8 times TTM earnings compared to 21.1 for the S&P500, an industry TTM average of 20.9. In addition, THO trades inexpensively relative to the company’s growth rate with a PEG ratio of 0.44 and to future cash flow.

Growth:

Next Fiscal Year EPS Growth – 30.8%
Projected 1-Year Revenue Growth – 51.7%
Projected 3-Year Revenue Growth – 61.9%

Here are some of the important points leading to current and future growth for THO.

Thor Industries has seen impressive increasing demand for their recreational vehicles. In their most recent quarter, the company more than doubled their motorized RV backlog to $706.4 million and nearly doubled towable RV backlog to $1.4 billion (inclusive of Jayco’s backlog).

Thor Industries is benefitting greatly from demographic trends. THO’s most important age group is between the ages of 45 and 60 and the baby boomer population is well within this range. In addition, there is a growing customer base of younger families purchasing the cheaper more affordable trailers and motorhomes. This is important for Thor Industries because it provides the company with a runway for repeat customers, which are likely to purchase more expensive recreational vehicles as their disposable income increases.

THO is investing in its facilities in order to increase production on the back of rising demand. Here is a quote from their most recent earning release.

“We increased production in the first half of fiscal 2017, which is typically a slower seasonal period, to respond to the high demand. We continue to make progress in expanding our production capacity, including expansion projects announced at Keystone, Jayco and Heartland, which should begin to ramp up over the remainder of fiscal 2017 and into fiscal 2018. The investments we are making in expanding our production facilities will position us well for long-term growth, which is a consistent focus of our strategic plan.”

In addition to the company’s rosy forecast for demand growth, Hoover see’s industry compounded growth rate 3% through 2021. Lastly, due to the discretionary nature of recreational vehicles, if there is any uptick in economic growth in the U.S demand for Thor’s products should follow suit.

THO is an acquisitive company, looking to buy companies in their industry that will expand their product offerings. The most recent acquisition was Jayco for $576 million. Jayco has contributed meaningfully to THO’s backlog. In the 2016 fiscal year, the Thor Industries generated $289 million in free cash flow and the company stands in good financial health with reasonable debt and interest coverage. In the future the company may continue to acquire companies leading to more top line growth.

Dividend:

Project Dividend/Yield – 0.00 / 0.00%
1-Year Dividend Growth – 0.00

Past Performance:

ROE – 22.97%

12-Month Price Target:

Thor Industry’s 12-month price target is arrived at by giving the company a multiple in line with its peers at 20.9 and using the consensus estimate of $6.43 for the 2017 fiscal year. This implies a 12-month share price of $134.39 and upside of 38.1%.

When To Sell:

Sell Thor if the economy seems to be turning because they are in a highly cyclical business and will be hurt severely in a downturn. Also, investors need to look for changes in demand within the RV industry more specifically.

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