Recreational vehicle (RV) manufacturer Winnebago Industries (NYSE: WGO)
shares have returned back near its pre-COVID February highs as the benchmark S&P 500 index (NYSEARCA: SPY)
also returns towards its all-time highs
. However, WGO shares have been under pressure after peaking near the $72.92 Fibonacci (fib) level
suffering a sell the new reactions to its Q3 2020 earnings. Shares may finally be stabilizing for a possible bullish weekly flag breakout. Risk tolerant investors may be able to grab WGO shares at a double-digit discount off highs before the breakout at opportunistic price levels.
Q3 FY 2020 Earnings Release
On June 24, 2020, Winnebago released its third-quarter fiscal 2020 results for the quarter ending May 2020. TheCompany reported a loss of (-$0.26) per share versus consensus analyst estimates for a loss of (-$0.37) per share, an $0.11 per share beat. Revenues fell (-23.9%) year-over-year (YoY) to $402.50 billion but handily beating consensus estimates of $335.93 million. Year-to-date (YTD) operating cash flow was $162 million, up 96% YoY due to cash conservation initiatives including its variable cost structure, trimmed capex and compensation cuts. By end of May 2020, Winnebago had $152 million in cash and an untapped $192 million credit facility. It also completed a $300 million note offering on July 1, 2020, to repay $253 million term loan facility and bolster cash.
The Company noted the emergence of strong demand in May into the summer months for outdoor recreation products. The motorhome segment revenues were up 27% YoY due to the integration of the recently acquired high-end motorhome brand Newmar which also experienced a 99% YoY unit backlog. Dealer inventories shrank due shutdowns in April and continue to remain low as retail demand has overwhelmed supply in many markets. Consumers are exploring other avenues of leisure time such as experiencing nature and the outdoors. RVing and boating are safe social distancing activities which fit right into the core product mix of RVs, marine and specialty vehicles.
Industry Echoes Robust Demand
Winnebago’s biggest competitor Thor Industries (NYSE: THO) reported strong Q3 fiscal 2020 earnings per share (EPS) of $0.43 versus (-$0.10) consensus analyst estimates, a $0.53 EPS beat. Both companies echoed how robust demand in recreational outdoor and nature activities is becoming the new leisure form of travel. The most blaring evidence of this comes from RV parts supplier LCI Industries (NYSE: LCII). On July 15, 2020, LCI Industries raised its Q2 2020 revenue guidance to a range of $515 million to $530 million, far exceeding consensus analyst estimates of $385.4 million. They pointed out the RVs continue to be one of the safest ways for families to vacation in a post-COVID world.
Outdoor leisure and recreational theme plays are no doubt pandemic winners. However, the big question is whether they will continue to have legs in a post-COVID climate as roads get busier and gas prices rise? Management stated that retail demand should continue through summer and possibly fall and winter, but wholesale demand should bounce back to exceed retail as dealers restock inventory. The Towables segment has seen 45% to 50% of buyers be first-time buyers as they enter the RV lifestyle and work up to motorhomes.
WGO Opportunistic Price Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for WGO stock. The monthly rifle chart triggered a market structure low (MSL) buy above $31.22 and weekly triggered above $34.40. The monthly rifle chart has a powerful double-barrel pup consisting of the moving average (MA) pup breakout driven by the stochastic mini pup supported by the monthly 5-period MA at $57.36. This sets up a monthly upper Bollinger Band (BBs) target of $74.84. The weekly stochastic peaked after the sell-the-news earnings reaction making lower highs and lower lows. This sets up a potential bullish flag breakout above the $64.02 fib. WGO has recovered above the monthly 5-period MA but with the weekly stochastic still falling, it may present opportunistic pullback price levels at the $60.11 fib, $57.32 monthly 5-period MA/fib, $55.66 fib and $53.77 fib. Keep an eye on sympathy stocks THO and LCII to gauge the overall market sentiment for the RV group. WGO is a laggard that can be pulled higher if the leaders continue to grind up. On the flipside, if the leaders fall, then watch for the pullback entries. If no pullbacks present themselves, then be aware of the $64.02 bull flag trigger for nimble traders with upside trajectories at $74.84 and as high as $80.62 weekly upper BBs/fib.
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