Shares of recreational vehicle manufacturers fell Wednesday after an analyst lowered price targets for several of the companies, and cut already pessimistic estimates, citing "brutal" conditions for the industry.
Robert W. Baird & Co. analyst Craig R. Kennison said a drop in consumer confidence caused by falling home values, rising gas prices, worsening economic conditions and looming election uncertainty have taken a big toll on the industry.
RV stocks are trading below their intrinsic value, but conditions are likely to get worse before they get better, he said. "Fundamentally, we believe consumer confidence must improve to spur a recovery," he wrote in a note to clients.
Motorhome sales fell 40 percent to 45 percent in the second quarter and deteriorated as the quarter progressed, according to nearly 140 dealers Kennison surveyed. Sales of towable units dropped 12 percent to 15 percent.
The survey showed motorhome inventory ballooned to 210 days from 121 last year, while inventory on towable units increased to 137 days from 109, he said.
With inventory up and sales down, dealers plan to slash orders in the next six months, ordering 40 percent to 45 percent fewer motorhomes and 35 percent to 40 percent fewer towables, according to Kennison.
Meanwhile, lenders have raised standards as the credit crisis spills over into the sector. GE Money, a division of General Electric Co., exited the market for consumer RV loans earlier this year.
Kennison cut his price target on Monaco Coach Corp. to $7 from $9, but kept an "Outperform" rating on the stock. Shares fell 64 cents, or 20.7 percent, to close at $2.45, and traded as low as $2.28 during the session, their lowest point since July 1996.
Cyclical recovery could begin some time next year if borrowing conditions improve and consumer confidence rebounds, Kennison said. Lower interest rates are also needed to help the industry recover, he said.
Many manufacturers and dealers are exiting the market altogether, leaving a larger share of the market to the survivors.
The analyst cut his price target on industry leader Winnebago Industries Inc. to $14 from $16, and kept an "Outperform" rating on the stock. Shares fell $1.44, or 12.6 percent, to $10.01. Shares have traded between $9.09 and $32.42 in the past year.
Low-cost producer Thor Industries Inc. is discounting its units aggressively, aiming to put competitors out of business, a tactic that Kennison believes could work long-term, but will likely hurt profit margins. He nevertheless cut his price target on the shares to $24 from $29, and kept a "Neutral" rating on the stock. Thor Industries fell 30 cents to $17.01.
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