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Bear of the Day: Winnebago Industries (WGO)

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Winnebago Industries (WGO - Free Report) is a Zacks Rank #5 (Strong Sell) that manufactures and sells recreation vehicles and marine products primarily for use in leisure travel and outdoor recreation activities. 

The stock has rallied after an earnings beat, but analysts are dropping estimates as of late. Investors might want to be cautious on rallies as the stock failed to break December highs and is pulling back to support levels.

About the Company

Winnebago was founded in 1958 and is headquartered in Eden Prairie, MN. The company employs about 6,250 people and operates through three segments: Towable RV, Motorhome RV, and Marine.

WGO is valued at $2 billion and has a Forward PE of 13. The stock holds Zacks Style Scores of “C” in Value, but F in Momentum and Growth. Winnebago pays a dividend of 1.8%.

Q2 Earnings

In late March, Winnebago reported an earnings beat of 8%. Revenues were light, but the management said it was “encouraged by data indicating that RV inventory levels are returning to an equilibrium stage.”

While the optimism was welcomed from the bulls, revenues were down across every category year over year:

- Motorhome revenues were $338M v $404M y/y

- Motorhome Backlog was $452M v $873M y/y

- Towable Revenues were $285M v $343M y/y

- Towable Backlog was $222M v $278M y/y 

With numbers down year over year, margins fell 190 basis points from last year.

The stock reacted positively after the earnings report, likely due to promising signs of a turn around based on managements comments.

However, analysts are more skeptical as estimates fall across the board.

Earnings Estimates

Over the last 30 days, earnings estimates for the current quarter have fallen from $2.05 to $1.53. This is a drop of 25% since reporting earnings.

For the next quarter, there is only a slight downtick, but we see bigger drops looking into the future.

For the current year, estimates have dropped from $5.77 to $5.28, or 8% over the last 30 days.

For next year, earnings estimates have dropped from $7.64 to $7.16 over the last 90 days, a move lower of 6%.

While price reaction to the earnings report was positive, the current bull market might have helped investors get ahead of themselves.

Technical Take

After earnings the stock took off, rallying about 14% in just over a week. The recent high almost took out 2023 highs, but sellers came in and the stock is trading just over technical support.

Both the 21-day MA and the 50-day MA are currently at the $68 level. Investors must watch this area for support and if it fails, the stock likely closes the earnings gap and tests the 200-day MA just under $66.

In Summary

Winnebago’s price action has improved, but analysts are not seeing earnings improvement. The stock has been stuck around the $65 area for almost four years and there doesn’t seem to be a reason for a breakout yet.

For those interested in the space, a better option might be Patrick Industries (PATK - Free Report) . The stock is a Zacks Rank #3 (Hold) that is trading close to 2024 highs.  

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