NY Times article, Borrowed from Yahoo. Sorry, no link to original.
Is Wall Street Too Narrow for a New Winnebago?
By MICHELLE LEDER
or more than a million Americans, summer means hitting the road in something larger than, say,
a Jeep Wrangler. Motor homes, for years dismissed as lumbering icons of decades past, are
fashionable again.
Some 1.5 million households owned motor homes in 1997, and the number is expected to
grow to 1.6 million in 2000 and 1.7 million by 2005, according to the Recreation Vehicle
Industry Association, a trade group in Reston, Va.
Winnebago Industries, of course, is a name synonymous with motor homes. So after years of
being ignored by many investors, the company's stock has become an increasingly popular way
to bet on the huge population of aging boomers, many of whom are not that far from retirement
age. (The median age of motor home buyers is 63.)
Winnebago's stock, which has traded below $10 for most of the decade, has nearly doubled
since its 1999 low in March; it closed on Friday at $25.9375, its high.
In addition to its strong brand-recognition, Winnebago, based in Forest City, Iowa, is also
benefiting from the popularity of a new line of upscale motor homes filled with many of the
comforts of a typical suburban home and with prices to match -- they run as high as $265,000.
For the quarter ended May 29, Winnebago's net income doubled from the corresponding
period a year earlier, to $14.6 million, or 66 cents a share, on sales of $191.5 million. At the
end of the quarter, it had orders in hand for 2,200 units up 170 percent from a year earlier --
evidence that Winnebago made the right move in adding high-end motor homes to its line last
year under the direction of a new chief executive, Bruce D. Hertzke. That helped widen profit
margins to 17 percent, from 14 percent last year.
Still, Wall Street has virtually ignored the company. Few mutual funds have substantial stakes in
it, and only one analyst -- Jeff M. Graff at A.G. Edwards & Sons in St. Louis -- actively
follows the stock, having started coverage in June.
Graff noted that Winnebago and its rivals, which include Coachmen Industries and Fleetwood
Enterprises, tend to trade at 10 to 12 times the current year's earnings per share. He expects
Winnebago to report earnings of $1.89 a share this year, so the stock is trading at 14 times his
estimate.
Robert A. Olstein, a value investor who runs the Olstein Financial Alert fund, recently cut his
position in Winnebago in half -- to less than 1 percent of fund assets. But he estimates that the
stock is still trading at a 20 percent discount to its private market value -- what he thinks it is
really worth.
"It's still a good company and I still like it long term. But I'm always trying to get a bargain," said
Olstein, who added that he does not expect to sell the rest of his stake unless the stock reaches
the low $30s.
Others are also betting Winnebago can grow. Art Bonnel, who runs the $110 million U.S.
Global Bonnel Growth fund, has 1.26 percent of its assets in Winnebago and says he thinks the
stock could hit $40 over the next two to three years. He expects Winnebago to post profits of
$2 a share in the fiscal year ending Aug. 28, double last year's figure.
Winnebago is flush with cash -- $56.4 million at the end of the quarter -- and carries no debt,
so a company spokeswoman, Sheila Davis, says it does not really need Wall Street's spotlight
in order to continue its climb. In June, Winnebago's board authorized the repurchase of up to
$15 million in stock -- its third such announcement in two years. Days later, Winnebago said it
planned to spend $3.6 million to increase production by 1,000 units a year.
The company has no plans to market itself to Wall Street more aggressively. "Why fix what isn't
broken?" asked Ed Barker, the chief financial officer. |
