Winnebago (WGO) Gains On Towable Unit, High Debt Level A Woe

On Mar 23, we issued an updated research report on Winnebago Industries, Inc. (NYSE:WGO) .

In the second quarter of fiscal 2018, the company reported quarterly revenues of $468.4 million, outpacing the Zacks Consensus Estimate. The top-line figure also witnessed a 26% surge from the same period a year ago, primarily driven by the Towable segment’s year-over-year revenue gain of 55.2% to $266.4 million.

Winnebago has recorded robust growth in revenues and earnings because of its towable segment. Strong organic growth and high-profitability across its own product line and Grand Design brand have enabled the towable segment to outpace the industry. Also, the addition of Grand Design within the segment has diversified its product portfolio while adding new customers to the company.

Winnebago Industries, Inc. Price and Consensus

However, the debt taken to finance Grand Design acquisition in October 2016 is risking shareholder’s stake in Winnebago. The company had an outstanding debt of $271.1 million, leading to a debt-equity ratio of 56.7% at the end of the second-quarter of fiscal 2018.

Moreover, Winnebago is focusing on the double-digit growth of its motorized segment, for which it has been making investments to develop new products. Additionally, the segment is also experiencing high material costs and product mix shifts, thus, adding to company’s expenses.

Also, the stock has seen the Zacks Consensus Estimate for quarterly and annual earnings being revised 6.7% and 0.6% downward over the last seven days, respectively.

Price Performance

In the last three months, shares of Winnebago underperformed the industry it belongs to. During the period, its stock fell 35.1% in comparison with the industry’s decline of 23.8%.

Zacks Rank & Key Picks

Winnebago sports a Zacks Rank #3 (Hold). A few better-ranked stocks in the auto space are AB Volvo (OTC:VLVLY) , Volkswagen (DE:VOWG_p) AG (OTC:VLKAY) and BMW AG BAMXF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Volvo has expected long-term growth rate of 15%. Over a year, shares of the company declined 23%.

Volkswagen has expected long-term growth rate of 18.7%. Shares of the company gained 26.2% in the past year.

BMW has expected long-term growth rate of 4.2%. Over a year, shares of the company gained 14.2%.

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