If you are looking for an undervalued dividend growth stock that is giving the market exactly what it wants Thor Industries (NYSE:THO) is worth your time. The company is riding a wave of secular growth that was unleashed by the pandemic. Demand for RVs and RV accessories has this company growing at a sustained high-double-digit rate and that is not going to end in 2021. Unlike other pandemic plays that are facing tough comps in the coming quarters, the backlog and demand for Thor Industries products should see this company grow robustly this year.
Thor Industries CEO and president, Bob Martin said:
"Just last week, the RVIA issued their updated 2021 forecast which projects total North American wholesale RV shipments will grow by approximately 24% in calendar 2021, to approximately 533,400 units compared to 430,412 units in calendar 2020. We concur with this forecast and believe there is a potential upside to RVIA's numbers based on current conditions. Consumers continue to show that they appreciate the value proposition RVs offer... ."
Thor Industries Hammers Down On Growth, Again
Thor Industries had a fantastic quarter marked by rising revenue, widening margins, better than expected earnings, and a growing backlog. Based on the backlog increase of 280% and CEO commentary we expect it will be late 2022 at the earliest before these trends subside to more “normalized” conditions.
On the top line, the FQ2 revenue of $2.73 billion is 36.5% better than last year and beat the consensus by 700 basis points. Revenue growth was driven by strength in both the U.S. operating segments and in the EU with the U.S. leading. Sales of U.S. towables increased 40% but were led by a 68% increase in motorized RVs. The EU lagged at 15% but still posted solid gains.
In all cases, volume and pricing played a role that helped to leverage earnings to great success. The company’s gross margin increased by 240 basis points over the past year to 15.2% and delivered a solid bottom-line beat. The GAAP EPS of $2.38 is not only up 358% from last year but it also beat the consensus by $0.78 or nearly 50%.
Looking forward, the company is expecting to see growth this year but declined from giving formal guidance. Regardless, execs did reveal they are expanding production, adding new product lines, and acquiring additional inventory to meet demand. In that light, we can expect to see revenue continue to grow at a modest to moderate quarter-to-quarter pace for the next quarter or two at least. Even without sequential growth, the current revenue is a company record and only has to hold steady to ensure YOY growth for the next four quarters.
Thor Industries Dividend Is Worth It
Thor Industries trades at a relatively attractive valuation compared to the broad market at only 16X this year’s and 15X next year’s earnings. Add to that a safe 1.3% dividend and the value becomes more attractive, add in the chance for dividend growth and Thor Industries is almost irresistible. The catch is that, even with an 18-year history of increases and a strong balance sheet, Thor is using a lot of its cash to fuel expansions and growth. In the near-term, that will keep dividend growth sluggish but in the long-term Thor’s growth should sustain decades of future increases.
The Technical Outlook: Thor Industries Is Breaking Out
Thor Industries is still trading well below its all-time highs but it may not be long before it reaches them. The recent action has been bullish and the FQ2 report has it trading above resistance in a position to move even higher. The indicators are in support of this move and suggest a sustained rally is on the way. If price action can get above the $132 level we see this stock moving up to retest the all-time highs near $160 or about 20% above the current price action.
