Recreational markets yet to hit bottom

DENVER – Several indicators suggest that the boating, RV and powersports markets have yet to hit the bottom of their recent declines, suggested RBC Capital Markets analyst Ed Aaron in a series of reports this week.

Aaron said dealers’ inventory levels, interest rates and consumer confidence numbers indicate that there may be a further drop in these markets before a recovery begins.

“Our conclusion is that we’re toward the latter stages of a difficult correction period, but it may be premature to bet on a sustained cyclical recovery,” he wrote. “If a more pronounced consumer slowdown emerges over the next few months, we think it could set up a more compelling contrarian buying opportunity in the not so distant future.”

Despite this forecast, the analyst continues to have positive things to say about two industry giants, MarineMax (rated Outperform) and Brunswick Corp. (rated Sector Perform).

“We believe MarineMax’s business is currently holding up rather well, and that the current quarter is tracking favorably relative to expectations,” he stated. “Based on current trends, we think HZO shares have room to recover if the tape accommodates.
We also think the stock has significant upside potential over a long-term time horizon (i.e., the next 3-5 years). “

Aaron added, however, that if a longer recession becomes evident, the retailer’s shared “would have enough downside risk to warrant a cautious stance.”

While Aaron stated that Brunswick is “one of our best long-term ideas and is well below its intrinsic value,” he believes that “dealers’ low appetite for inventory” will require Brunswick to maintain low production levels into next year. Therefore, the company is lowering its 2007 estimate to $2.35 from $2.65.

“We believe BC shares are farther below their intrinsic value than perhaps any company in our group,” he wrote. “We think estimates may need to shake out further, but we believe the company’s strategic growth initiatives will drive solid stock performance over a long-term horizon.”

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