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Bear of the Day: Thor Industries (THO)

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Thor Industries, Inc. (THO - Free Report) is getting pressured by both a tight labor market and the steel and aluminum tariffs. This Zacks Rank #5 (Strong Sell) has seen the air come out of its stock's sails despite another quarter of record sales.

Thor is the world's largest manufacturer of recreational vehicles, also known as "RVs". It's brands include Airstream, Bison, Dutchman, and Jayco. It sells both towables and motorized homes.

Missed on Earnings in the Fiscal Third Quarter

On June 6, Thor reported its fiscal third quarter results and missed on the Zacks Consensus Estimate by 12 cents. It reported $2.53 versus the consensus of $2.65.

It was the first miss for the company in five quarters.

However, it was a record third quarter with net sales up 11.7% to $2.25 billion as both Baby Boomers and Millennials take to the open road in record numbers.

Sales rose 12.8% for the Towable segment, that includes the popular Airstream, and gained 8.8% for the Motorized segment.

Gross profit, however, fell to 14.1% from 14.6% a year ago, due to costs associated with warranty expenses and slightly higher labor and material costs.

The unemployment rate in Elkhart, Indiana, where Thor's main manufacturing plants and headquarters are located, has remained near historic low levels. But even with those pressures, Thor said that its labor pressures had moderated in the quarter.

It's facing "headwinds" due to the steel and aluminum tariffs as well as higher warranty costs.

Analysts Cut Estimates

While the RV industry remains strong, as does the backlog and orders, the analysts cut fiscal 2018 and 2019 estimates anyway due to the commodity cost pressures and uncertainties.

The fiscal 2018 Zacks Consensus Estimate fell to $8.77 from $9.16 over the last 60 days. That's still a gain of 23% over the fiscal 2017 earnings of $7.09.

Analysts also cut fiscal 2019 estimates. That pushed the Zacks Consensus down to $9.42 from $10.88 just 2 months ago. But that's still another 7.4% gain.

The analysts aren't saying the earnings growth cycle has peaked. Their estimates indicate that the gains are simply slowing.

Is it Cheap Here?

Investors have fled the RV stocks, including Thor in 2018.

Shares have fallen 37% year-to-date, and are now down sharply from the early 2018 highs.



Could Thor be a buying opportunity at these levels? After all, the year-over-year earnings growth is still there.

Thor now trades with a forward P/E of just 11.4. That's cheap compared to the S&P 500 which trades around 18x.

It also pays a dividend, now yielding 1.5%.

But until the trade and tariff impacts become known, investors will likely stay away from this entire industry.

Competitor Winnebago Industries (WGO - Free Report) has fallen 24% year-to-date and now trades with a forward P/E of just 13.3. It's a Zacks Rank #3 (Hold).

Parts maker LCI Industries (LCII - Free Report) has fallen 28% year-to-date. It has a forward P/E of 13. It's a Zacks Rank #4 (Sell).

For investors looking for a buying opportunity in the RV industry, you might need to have a little more patience.

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