Winnebago Industries (WGO) recently reported disappointing results for its fiscal 2015 first quarter, citing labor constraints and supply chain disruptions. This prompted analysts to revise their estimates lower for both fiscal 2015 and 2016, sending the stock to a Zacks Rank of 5 (Strong Sell).
Until earnings momentum turns around, investors should consider avoiding this stock.
Winnebago Industries manufactures recreation vehicles (RVs) and wholesales them to dealers throughout the United States and Canada. The company is headquartered in Forest City, Iowa and has a market cap of $610 million.
First Quarter Results
Winnebago reported its fiscal 2015 first quarter results on December 18. Earnings per share came in at 37 cents, missing the Zacks Consensus Estimate by 8 cents. It was an 8% decrease over the same quarter last year.
Management cited labor constraints and supply chain disruptions for the disappointing results.
Revenues inched up 1% to $224.4 million, but this was below the consensus of $234.0 million. The gross profit margin fell from 11.7% to 10.9% of revenues while the operating margin declined from 7.2% to 6.4% of revenues. And operating cash flow fell from -$11.9 million to -$19.6 million due in large part to higher inventory.
Estimates Falling
Following the Q1 miss, analysts revised their estimates meaningfully lower for both fiscal 2015 and 2016. The negative revisions were significant enough to drive Winnebago to a Zacks Rank of 5 (Strong Sell), placing it in the bottom 5% of all companies that Zacks ranks.
Falling earnings estimates are certainly not unique to Winnebago in the RV industry. Competitor Thor Industries (THO) has also seen negative estimate revisions following an earnings miss on December 1. It is a Zacks Rank #4 (Sell).
Valuation
Shares of Winnebago are trading well off their 52-week highs, but it doesn’t look like a screaming value here. WGO trades at an enterprise value to cash flow multiple of 12, which is in-line with its 10-year median. And its price to 12-month forward earnings ratio of 13 is in-line with the industry.
The Bottom Line
Given the significant decline in earnings estimates, investors should consider avoiding Winnebago for now.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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