Thor Industries Is Ready To Move Higher
After months of uncertainty, Thor Industries (NYSE: THO) has proven beyond doubt that it is capable of producing RVs. The company's fiscal fourth-quarter results were so strong the shares were up 2.5% in premarket action and on track to confirm a full reversal. Based on trends within the industry, Thor Industries’ revenue should at least remain steady if not continue to grow in the coming quarters. The only risks are supply chain disruptions and microchip shortages that so far seem to have less effect on this industry than on others. If you're looking for a high-quality dividend growth stock that is supported by secular trends and trading at a deep value Thor Industries is a good candidate.
"Looking ahead, our cash utilization priorities remain consistent with our stated capital allocation priorities, namely, investing in our businesses, reducing our debt obligations, paying and, over time, growing our dividends, funding strategic opportunities, repurchasing shares on a strategic and opportunistic basis and paying special dividends as determined by our Board of Directors,” says Thor Industries CFO Colleen Zuhl.
Thor Industries Exceeds All Expectations
Thor Industries exceeded even our own high expectations for revenue and earnings in the fourth quarter. The record-high levels of demand and the company's efforts to expand production drove revenue to $3.59 billion or up 54.7% from last year. Last year, the company revenue was on the upswing from its COVID-bottom and slightly higher in the 4th quarter than in 2019 which outs the 2-year comparison right at +55%. The strength was driven by gains in all segments but led by the motorized division. Sales of motorized RVs grew 125% versus a 46.4% gain in the towable segment and a 31.1% gain in the European segment.
Moving down to the earnings, the company was able to drive a 170 basis point improvement in gross margin despite the many headwinds facing the market today. The gross margin of 16.6% helped drive a GAAP EPS of $4.12 which is up 92.5% over last year and beat the consensus by $1.17. Looking forward, we expect company revenue to remain at or above these levels for several more quarters at least because of the 190% increase in backlog.
"Demand for our RV products remains very robust, continuing to exceed production output. This sustained level of strong demand has led to a continuation of historically low dealer inventory levels and resulted in a new record-high backlog value of $16.86 billion as of July 31, 2021," said CEO Bob Martin.
Thor Industries Is Safely Growing Its Dividend
Thor Industries is no high-yielding stock but it does pay a very safe 1.45% yield while trading at only 10X its consensus earnings. At current levels, the company is only paying out about 12% of its earnings with earnings expected to grow. The balance sheet is carrying some debt but the company is working to pay that down and coverage is sufficient to maintain distribution safety, increase the payout, and continued working down the debt. The 10-year history of growth has a mid-single-digit CAGR but that is compounded by the possibility of special dividends that could come in the next year or so after recent acquisitions are paid for.
The Technical Outlook: Thor Industries Confirms A Double-Bottom Reversal
Thor Industries has completed a very interesting double-bottom reversal pattern that has it on track to retest the 2021 highs by the end of the year. We call it an interesting double bottom reversal pattern because the first bottom is itself a double bottom that is later confirmed by a second bottom and today's 8.5% surge in price action. There is a chance for resistance at the $123 level but we expect it to fall quickly. Once that level is surpassed, shares of the stock should easily be able to rise to the $140 level and surpass the Pricetargets.com consensus target of $136.
