Camping World: when dividend cuts are a good thing

Camping World NYSE: CWH cut its dividend by 80%, and the shares fell 50% because of it, but the cut is a good thing. The cuts weren’t made because the company couldn’t pay but because it used cash flow for growth. At the same time, share prices have fallen considerably since the announcement, but the decline can only be called a buying opportunity.

Shares are up more than 60% from the low because the company continues to execute its plans. It opened numerous new locations in 2023 and is on track to open or close another 15 deals this quarter. 

“After concluding its review of the Company’s capital allocation strategy, the Board has elected to modify its quarterly dividend to reflect the prioritization of capital allocation towards RV dealership acquisitions,” said Camping World when it unexpectedly cut its dividend.

What does 15 stores mean to Camping World? Fifteen stores is a 7% increase in location count compounded by timing. The company says the new stores will be open ahead of the spring selling season, which is expected to be robust compared to the prior year. Camping World also plans to enter into new deals during F2024. 

“The unprecedented influx of acquisition opportunities has continued and the pipeline is robust. We plan to capitalize on it as we invest ahead of anticipated revenue growth in 2024 and beyond,” commented CEO Marcus Lemonis following the Q3 earnings release. 

The RVIA expects wholesale shipments to return to growth as inventory and demand trends come back into alignment. They predict growth to range from 12% to 16% and used RV sales, a segment that Camping World excels in may be stronger due to price and interest-rate-conscious shoppers. 

Camping World results expected to contract in Q4

Camping World analysts expect the company’s revenue and margin to contract in Q4. The takeaway is that the bar is set low, with most analysts reducing their estimates over the past month, and growth is expected to return next year. 

Analysts expect revenue to grow only 5% compared to the double-digit forecast for industry-wide sales, so Camping World will likely exceed this estimate. Margin is also expected to improve with comp-store and new-store leverage adding to the mix. Earnings are expected to grow more than 100% and may exceed that estimate as well. 

The analysts' consensus price target for CWH stock has fallen over the last year, but there are more bullish details in the data than bearish. While the price target has fallen, consensus remains 15% above the current action and has stabilized in the last month. 

Because the company is leveraging its growth trajectory while the industry turns a positive corner, investors may expect to see the stock price targets increase. Until then, analysts have rated the stock a consensus Moderate Buy/Buy with enough conviction to put it on Marketbeat’s list of Top Rated Stocks. 

Coincidentally, Marketbeat’s stock tracking tools are picking up positive news sentiment focused on Camping World. Among the latest news bits is confirmation of the opening of 15 new locations this quarter and initiated coverage by Roth MKM. Roth MKM initiated at Buy with a $30 price target, slightly above the $29.90 consensus. Roth MKM says this retail stock is uniquely positioned to benefit from trends in 2024.

Camping World’s Dividend is safe for now

Camping World’s dividend is safe enough now that it has been cut. The payout is 72% of the 2023 earnings consensus but only 34% of the 2024 consensus, a likely low consensus estimate. The balance sheet carries some debt, so there is concern, but coverage is solid, and the growth trajectory is robust. 

Camping World plans to continue leveraging its balance sheet as it consolidates a largely unconsolidated RV dealership market. The company plans to open at least 50% more stores over the next five years and will create a massive cash flow machine. When it switches gears from growth to debt reduction, debt will come down quickly, and capital returns will grow. 

The price action in Camping World is favorable to higher share prices. The market rebounded smartly from the 2023 lows and has regained critical support levels, with growth expected in 2024. Support is currently near $26, a significant price point since 2021. If the market can hold support at this level, it should move sideways and upward during 2025. If not, Camping World could correct to the $23 before advancing much higher.