Is Winnebago Stock a Buy Before it Reports Earnings Tomorrow?

In-part driven by coronavirus infection fears around public transport and public lodging facilities such as hotels and motels, a renewed interest in outdoor activities has taken hold with consumers. This interest is driving an increased demand for Winnebago’s (WGO) recreational vehicles (RV). As such, analysts expect the company’s soon-to-be-released quarterly report to show solid improvements in revenue and earnings. So, it may be wise to bet on the stock ahead of its fiscal first quarter earnings release expected tomorrow.

Based in Forest City, Iowa, Winnebago Industries, Inc. (WGO) manufactures a line of recreational vehicles (RV) and marine products that are used mainly in leisure travel and outdoor recreational activities. The company operates through six segments — Grand Design Towables, Winnebago Towables, Winnebago Motorhomes, Newmar motorhomes, Chris-Craft Marine, and Winnebago Specialty Vehicles.

Despite the global COVID-19 pandemic—indeed, arguably in-part because of it--the company has seen a continued rise in its RV market share. In addition to record consumer interest, the company has leveraged strong dealer relationships. WGO is also expected to deliver even better numbers in its upcoming earnings report because it continues to introduce exciting new products.

WGO is scheduled to release its first quarter fiscal 2021 results before the market opens on December 18. Consensus revenue estimates of $748.38 million for the quarter ended November 30, 2020 indicate a 38.9% increase over the same period last year. Its EPS is expected to increase 34.2% for the quarter ended November 30, 2020.

WGO has gained 22.3% over the past year. This impressive performance and potential upside based on a few factors have helped the stock earn a “Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates WGO:

Trade Grade: A

WGO is currently trading above its 50-day and 200-day moving averages of $52.78 and $57.12, respectively, indicating an uptrend. Moreover, WGO has gained 17.8% over the past month, reflecting solid short-term bullishness.

The company reported strong performance for the quarter ended August 31, 2020. Its net revenue increased 39.1% year-over-year to $737.8 million. Its revenue from the towable segment has increased 34.8% year-over-year to $414 million, driven mainly by strong consumer demand for outdoor experiences, particularly in Grand Design products. Its net income has increased 33.2% year-over-year to $42.5 million, driven by the growth in operating income. EPS has increased 45% year-over-year to $1.45.

WGO introduced a new corporate enterprise brand on December 2. It includes a new visual identity system, wordmark, and tagline. The move comes at a time when there is a renewed interest among Americans for outdoor activities. Also, the company’s Specialty Vehicle Division revealed its updated 2021 Accessibility Enhanced (AE) RV line on November 18. WGO also announced a dealer partnership with La Mesa RV for its 2021 model year products.  La Mesa RV will carry the AE units exclusively.

Buy & Hold Grade: C

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, WGO is positioned unfavorably. The stock is currently trading at 18.9% below its 52-week high of $72.65, which it hit on June 23.

The company’s net revenue grew at a CAGR of 15% over the past three years, while EBITDA increased at a CAGR of 7.3% over the same period. This can be attributed to the company’s constant product innovations.

Peer Grade: C

WGO is currently ranked #18 of 34 stocks in the Auto & Vehicle Manufacturers industry. Other popular stocks in the auto & vehicle manufacturers group are Ferrari N.V. (RACE), Fiat Chrysler Automobiles N.V. (FCAU), and Toyota Motor Corporation (TM).

WGO beat FCAU and TM’s gains of 16.2% and 8.8%, respectively, over the past year, while RACE returned 34.5% over the same period.

Industry Rank: A

The Auto & Vehicle Manufacturers industry is ranked #6 of the 123 industries. The companies in this industry manufacture and sell vehicles including passenger cars, light trucks, motorcycles, and more.

While the coronavirus pandemic has disrupted normal life, there has been an increasing trend among the people to visit places near to home using private transportation rather than public transportation. With a renewed interest of the Americans in outdoor experiences, this industry is expected to gain significantly in the upcoming months.

Overall POWR Rating: B (Buy)

WGO is rated “Buy” due to its short-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

WGO has the potential to soar in the upcoming months despite gaining 22.3% over the past year, based on its continued business growth, favorable earnings and revenue outlook, and strong financials. Because the company is expected to report impressive revenue and earnings growth in its upcoming quarterly report, it could be wise to bet on the stock right now.

WGO has an average broker rating of 1.27, indicating a favorable analyst sentiment. Out of 11 Wall Street analysts that rated the stock, 6 rated it “Strong Buy.” Moreover, WGO has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters.

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WGO shares were trading at $59.26 per share on Thursday morning, up $0.35 (+0.59%). Year-to-date, WGO has gained 12.89%, versus a 17.16% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.


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