On Thursday, CFRA made an adjustment to the financial outlook for Winnebago Industries (NYSE:WGO), reducing the 12-month stock price target from $70.00 to $60.00 while maintaining a Hold rating. The decision comes as a response to the revised earnings projections and the recent performance of the company.
The firm based its new price target on an 8.0x price-to-earnings (P/E) ratio for the fiscal year ending in August 2025, which represents a discount to Winnebago's five-year mean forward P/E of 11.0x. CFRA also adjusted its earnings per share (EPS) estimates for Winnebago, lowering them to $5.45 from $6.80 for the fiscal year 2024, and to $7.50 from $8.75 for the fiscal year 2025.
Winnebago's recent quarterly report indicated an adjusted EPS of $0.93, which, despite being a 51% decrease from the previous year's $1.88, still surpassed the consensus estimate of $0.86. This beat was attributed to margins that were stronger than expected, in spite of a 19% decline in revenue to $704 million, which fell $7 million short of the consensus.
The contraction in gross margin was reported at 190 basis points, bringing it down to 15.0%, albeit slightly above the consensus by 10 basis points. A detailed look at the company's sales revealed a 9% year-over-year decrease in Towable RV sales, a 16% drop in Motorhome volumes, and a significant 32% fall in Boat sales.
Looking ahead, Winnebago has set ambitious mid-cycle organic growth targets, aiming for net revenue between $4.5 billion and $5.0 billion, along with gross margins of 18.0% to 18.5%. However, CFRA views these targets as optimistic given the current market conditions.
The firm highlighted that Winnebago's outcomes are closely tied to consumer discretionary spending and oil prices, factors which are presently impacted by a high-interest rate environment that is expected to pose challenges in the near term. Consequently, CFRA has chosen to retain a Hold rating on Winnebago's shares.
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