ST. LOUIS, Mo. — Timothy Conder, a senior analyst for Wells Fargo Securities LLC, recently released his January report on Brunswick Corp. He currently rates the company’s stock as “Outperform,” or “buy,” which means that the stock appears attractively valued, and he believes the stock’s total return will exceed that of the market over the next twelve months. He’s rated it as “outperform” since Nov. 2009.
The report included these observations on the company and the industry:
• Statistical Surveys reported that U.S. retail unit sales in Jan 2011 saw a 5.9 percent decline in 14- to 30-foot fiberglass boats year-over-year, all fiberglass boats decline 6.3 percent year-over-year, and sales of aluminum boats rise 8.6 percent year-over-year. Statistical Surveys qualified the January 2011 results by stating (1) Declines in fiberglass boats could be slightly overstated due to Coast Guard data-entry delays, and (2) Single-digit declines in fiberglass and healthy growth in aluminum signal that demand is starting to outpace supply and that the industry is poised for a modest recovery in 2011.
• Following the conclusion of the Miami International Boat Show on Feb 21st (allowing time for orders to be adjusted and sales to be aggregated) and retail sales year-to-date, our conversations with industry contacts indicate that the U.S. boat industry could be on pace to see unit retail growth approximating as much as 10 percent in 2011. Optimism remains rooted in the fact that the supply of excess quality used boats and non-current new boats is exhausted and that used boat prices are rising making a new boat choice more palatable.
• Conclusion. We would quickly acknowledge that it remains very early in the retail boat selling season and that solid initial clarity of sell-through will not be available until April. Our 2011 estimates for BC reflect a base case scenario of a flat year at retail for the industry and BC gaining share ($0.37 EPS) and a +5 percent year at retail for the industry with Brunswick Corp. again gaining share ($1.12 EPS). Should a strong +10 percent retail unit year unfold, it would likely be skewed to the 30′ and under aluminum/fiberglass category, but clearly add confidence that our peak cyclical earnings power for BC could prove conservative.
• Bottom Line: We will continue to monitor retail sell-through as we move into the key selling months, but continue to view Brunswick Corp. shares as offering an attractive risk/reward profile and would be building positions.