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Baron's Writer Bearish on RV Industry's Thor

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December 26, 2012 by   - () Leave a Comment

Editor's Note: The following article appeared in Baron's online edition.

Travel trailers and motorhomes are regaining favor among their Baby Boomer fans. Investment researcher Mark Roberts isn't one of them.

Roberts is perplexed by the strong sales and stock performance of Thor Industries Inc., the recreational vehicle industry leader that produces iconic brands such as Airstream. Revenue has grown at a double-digit pace for three years at Jackson Center, Ohio–based Thor, and that's revved the shares from under $20 to a recent high of $45. They were trading at about $38 last week.

RVs like Thor's aluminum classic Airstream camper definitely appeal to retirees. At issue is how much.

Since March, Roberts' research boutique, Off Wall Street Consulting Group, has recommended that its clients sell shares in the RV maker. The idea hasn't yet worked out. But Roberts' group has proved correct in 80% of its Sell recommendations since 1995, on average beating a short of the Russell 2000 Index. Roberts watches the RV industry's own survey data, and those numbers suggest that overall manufacturer sales to dealers have been running ahead of retail sales for more than two years for the "towables" RV segment, where Thor gets 70% of its revenue. Whether those industry numbers portend a retail glut for Thor or just its rivals, an oversupply of trailers won't be good for the company's unit sales or pricing.

"There's this puzzling gap between strong wholesale shipments and tepid retail sales," says Roberts. At RV industry trade shows this fall, Off Wall Street researchers heard about manufacturers offering handsome discounts to dealers who increased their orders. Thor's October-quarter revenue jumped 30%, but pricing was unimpressively flat. "Unless things are picking up amazingly," surmises Roberts, "they are stealing from next year's orders."

Signs of a Possible Glut

Thor stock has jumped this year, though industrywide "towables" shipments have outpaced retail in the U.S. and Canada since 2010.

Thor executives and RV-industry financiers contend that dealer inventories are in line with consumer demand, which has been reviving from a harrowing plunge in 2008. Dealers have rightly been rebuilding inventory from emaciated levels, they say. "Camping is a lifestyle," observes Bob Martin, Thor's president and chief operating officer. "Many Baby Boomers are coming into our industry…. For the next few years, we foresee slow and steady growth."

But wholesale "sell-in" to dealers can't run ahead of retail "sell-through" to consumers forever. Short interest in Thor has risen lately to about 10% of the company's 50 million free-trading shares. By Roberts' estimate, the next sales slowdown will send Thor stock back to the low $20s.

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